Eurozone inflation hits 2% mark as European Central Bank debates policy

Eurozone inflation accelerated to the fastest pace since January 2013, providing fresh arguments to those calling for an exit from the European Central Bank’s monetary stimulus programme.

Consumer prices rose 2% in February from a year earlier, the EU’s statistics agency said yesterday. The rate was 1.8% in January. Rising oil prices have been pushing up inflation across the eurozone, including in Germany, its largest economy, Spain and Italy.

In a sign of further increases ahead, producer-price growth jumped to the highest in almost five years, rising 3.5% in January on an annual basis. Meanwhile, the eurozone’s core inflation, which strips out volatile elements such as energy, was unchanged for the third consecutive month in February at 0.9%.

“The focus remains on core inflation, which isn’t looking great,” said Frederik Ducrozet, senior economist at Banque Pictet and Cie in Geneva. “It’s stable at best and as long as this remains the case, there is no reason to even think about a policy change.”

The divergence between the two inflation indicators highlights the challenges facing the ECB in choosing the right amount of monetary stimulus.

While headline inflation is moving upward in line with the central bank’s goal of a rate below but close to 2%, the persistent weakness of core inflation is a source of concern for officials, including ECB president Mario Draghi.

The ECB’s latest projections foresee an average inflation rate of 1.3% this year, before accelerating to 1.5 percent in 2018. The central bank will update those forecasts at next week’s meeting of its Governing Council.

Meanwhile, eurozone unemployment was unchanged at 9.6% in January, the lowest since May 2009, statistics agency Eurostat said in a separate release yesterday.

Mr Draghi has repeatedly said the risks to the eurozone economic outlook remain tilted to the downside due to external issues including Brexit. -

  • Bloomberg


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