Euro-Area Inflation Hits 2 Percent as ECB Debates Policy Stance

Consumer Prices
  • Euro-Area Inflation Hits 2 Percent as ECB Debates Policy Stance

Euro-area 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 program.

Consumer prices rose 2 percent in February from a year earlier, the European Union’s statistics agency in Luxembourg said Thursday. That matched the median estimate of 47 analysts surveyed. The rate was 1.8 percent in January.

Rising oil prices have been pushing up inflation across the euro area, including in Germany, its largest economy, Spain and Italy.

Meanwhile, the euro area’s core inflation, which strips out volatile elements such as energy was unchanged for the third consecutive month in February at 0.9 percent.

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 percent, the persistent weakness of core inflation is a source of concern for officials including ECB President Mario Draghi.

The euro-area unemployment was unchanged at 9.6 percent in January, the lowest since May 2009, statistics agency Eurostat said in a separate release Thursday. In the same month, producer prices in the 19-member bloc rose 0.7 percent from December when they had increased 0.8 percent.

Price Surge

Back in January, 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 a whole. On that basis, the ECB may well look through the recent surge in prices because of the energy-cost effect.

The ECB’s latest projections foresee an average inflation rate of 1.3 percent this year, before accelerating to 1.5 percent in 2018. The central bank will update those forecasts on March 9 after a meeting of its Governing Council.

Jens Weidmann became the first policy maker to provide clues on how much the European Central Bank may raise its inflation forecast next week.

“Inflation this year is likely to be well in excess of the figure projected to date,” the Governing Council member said Wednesday in a speech in Ljubljana, Slovenia. The projection for Germany could be raised by half a percentage point “and this might also be the case for the euro area as a whole,” he said.

ECB’s Draghi has repeatedly said the risks to the economic outlook for the 19-nation euro area remain tilted to the downside due to external issues including the agenda of U.S. President Donald Trump and the impact of Prime Minister Theresa May’s plan to take the U.K. out of the EU. Elections this year in euro-area core member states of France, Germany and the Netherlands add to the uncertainty.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

Be the first to comment on "Euro-Area Inflation Hits 2 Percent as ECB Debates Policy Stance"

Leave a comment

Your email address will not be published.


*