Euro inflation boosts case for ending QE

Euro inflation boosts case for ending QE

By Catherine Bosley

Eurozone inflation accelerated last month, buttressing the arguments of policymakers keen to phase out unprecedented stimulus.

The inflation rate rose to 1.4% in March, the highest level since the end of last year. The reading is in line with the median estimate in a Bloomberg survey and up from 1.1% in February. The core rate remained unchanged.

More than three years after the ECB cut interest rates below zero and started its asset-purchase programme, policymakers are finally confident inflation will return to their goal of below but close to 2%.

That confidence has fuelled a debate over how and when to scale back support, with officials telling investors they are broadly right in anticipating an end of bond buying by December and the first rate increase in the middle of next year.

Most prominent among the ECB governing council’s 25 members arguing for bringing quantitative easing (QE) to a halt is Jens Weidmann. The president of Germany’s Bundesbank reiterated his call last month for ending asset purchases “soon” and labelled expectations for a mid-2019 hike “probably not entirely unrealistic.”

Dutch central bank Governor Klaas Knot has adopted a similar stance, saying policy normalisation is “a top priority.”

Buttressing Mr Weidmann’s stance, inflation in Germany, the bloc’s largest economy, jumped in March to the highest level since December, data last week showed. Consumer-price growth accelerated more than forecast in Italy and France, though Spain’s uptick fell short of expectations. The timing of Easter may have distorted data last month.

The ECB predicts inflation in the eurozone will hover around 1.5% for the remainder of the year. According to Commerzbank economist Christoph Weil, officials may be in for a rare upside surprise. He sees the rate exceeding 2% in the summer, due to higher energy costs. Core inflation though will barely budge.

- Bloomberg

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