Eurozone inflation above European Central Bank's target

Pound to euro exchange rate graph
Eurozone inflation above European Central Bank's target

04 March, 2017

The European Union's statistics agency Thursday said consumer prices were 2.0% higher in February than in the same month a year earlier, the highest rate of inflation since January 2013 and a pickup from 1.8% in January 2017. Core inflation - which strips out volatile fresh food and energy costs - was up 1.3 percent, an increase from January's 1.2 percent.

However, that acceleration was mostly down to a 9.2% rise in energy and a 5.2% rise in food prices over the year. "After its meeting next week, the ECB is likely to reiterate its view that the latest pick-up in inflation will be transitory and we see the Bank carrying out this year's asset purchases as planned". If in the coming months inflation remains high (some market analysts, however, believe it reached a peak in February), the European Central Bank, which next week will present its new macroeconomic forecasts, and the Bundesbank, expect inflation to return to fall at the end of the year, as the effect of the higher oil prices eases. "Inflation will remain this high in the coming months", Postbank chief economist Marco Bargel said, adding that core inflation would also pick up due to Germany's continued upswing and its robust labor market. Stimulus critics, however, have grown louder as the eurozone economy recovers and inflation nears the bank's goal of just under 2 percent.

In January, Mr Draghi pointed to a new set of criteria arguing that the return to the ECB's inflation goal must be durable, self-sustained and representative of the euro area as whole.

The bank has cut its main interest rate to zero and embarked on the bond-buying programme to try to stimulate growth in the eurozone and avoid deflation, or falling prices.

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The German central bank has warned that homes in large German cities are 15 to 30 percent overpriced, in a message that stoked further fears about the side-effects of the ECB's stimulus.

The ECB has slashed interest rates and adopted a bond-buying programme worth 2.3 trillion euros to pump money into the region's economy.

Ahead of those elections, the eurozone economy has shown signs of picking up steam, and surveys show businesses expect faster growth to come.

German unemployment fell more than expected in February and the jobless rate remained unchanged at its lowest level since reunification in 1990, separate data from the Federal Labour Office showed on Wednesday.

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