Eurozone inflation above European Central Bank's target
- Author: Darren Santiago Mar 04, 2017,
Mar 04, 2017, 0:46
Eurozone inflation in February rose to 2% for the first time since January 2013.
The increase has been mostly driven by higher energy prices (+9.2%) and partly by food prices (+5.2%).
ECB chief Mario Draghi said last month he saw no need to change course in pursuit of the central bank's "close to but just below" 2.0 percent target and the economy still required support.
Jennifer McKeown at Capital Economics said she expected the increase to 2.0 percent to "prove temporary".
"The continued impact of transitory factors on the headline rate, coupled with the continued limited pass through to core inflation, should see the ECB leave both policies unchanged at its meeting next week and also resist calls to adjust its forward guidance for the time being", said Cathal Kennedy, European economist at RBC Europe. "But the bank will no doubt recall that the inflation target has to be reached over the medium term and for the whole of the Eurozone". The firm suspects it will fall back later in the year as year-on-year energy prices moderate.
The strong economy enables companies to pass on higher costs - such as increased import prices - to customers, pushing up overall inflation. Economic recovery indicators in the euro area are read by the European Central Bank in a scenario of political uncertainty (Trump and Brexit outside of the eurozone, elections in the Netherlands, France, and Germany, and maybe Italy, within the single currency area), prompting further caution.
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The return of inflation will ultimately pave the way for rising interest rates.
The ECB is scheduled to run its quantitative easing bond-buying scheme until at least December and has pushed interest rates deep into negative territory to try to stimulate weak growth and hitherto stubbornly low inflation.
Ahead of those elections, the eurozone economy has shown signs of picking up steam, and surveys show businesses expect faster growth to come.
Unemployment in the 19-country single currency area in January meanwhile was 9.6 percent, unchanged from December but holding at its lowest rate since May 2009, the Eurostat statistics service said.
Eurostat also estimates that the number of unemployed people in the eurozone fell by 56,000 to 15.6m in February in a statement at the end of today's inflation release.