Eurozone inflation above target for first time in 4 years

Sean Gallup  Getty Images
Sean Gallup Getty Images

04 March, 2017

Inflation in the eurozone has risen above the European Central Bank's (ECB) target to reach 2% in February, its highest level since January 2013. It was the highest annual inflation rate since August 2012.

However, core inflation, which does not include the most volatile prices like energy and food, was stable at 0.9 per cent, having last risen in December from 0.8 per cent.

Economist Carsten Brzeski at ING-DiBa said that "with inflation about the magical 2 percent level, new complaints against the ECB's loose monetary policy and new media headlines are likely to emerge".

Jennifer McKeown at Capital Economics said she expected the increase to 2.0 percent to "prove temporary".

The core inflation rate, excluding food, energy and tobacco, held at 0.9% for the month which was also in line with expectations. During that time, inflation across the eurozone sank and at several times, consumer prices were actually falling — a phenomenon known as deflation that can hurt an economy as consumers put off purchases in the expectation of lower prices and firms grow reluctant to innovate and invest.

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.

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"Psychologically, 2 percent inflation could be important and there will be more pressure building on the European Central Bank to taper - especially if the economy continues to grow", said KBC strategist Piet Lammens. The main reasoning behind the stimulus has been to get inflation back to target by lowering borrowing rates and promoting economic growth.

Three months ago, it extended its quantitative easing programme by nine months to this December and added €540 billion to take its total asset purchases to €2.2 trillion.

Most analysts think the European Central Bank will not back off its stimulus but may signal at some point later this year its intentions to start tapering it off gradually in 2018.

Eurozone inflation accelerated at its fastest pace in more than four years last month, according to the region's official statistics office, as energy prices surged on the back of gains for global crude oil.

Eurostat estimates that the number of unemployed people in the eurozone fell by 56,000 to 15.6 million.

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