Wednesday 26 July 2017

Eurozone inflation at 2pc raises questions for ECB policy

Mario Draghi
Mario Draghi

Maria Tadeo and Lorenzo Totaro

Euro-area inflation has accelerated to the fastest pace since January 2013, providing fresh arguments for those calling for an exit from the European Central Bank's monetary stimulus program.

The return of inflation will ultimately pave the way for rising interest rates. Consumer prices rose 2pc in February from a year earlier, the European Union's statistics agency in Luxembourg said on Thursday.

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 0.9pc.

The divergence between 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 2pc, the persistent weakness of core inflation is a source of concern for officials including ECB President Mario Draghi.

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

German central bank chief Jens Weidmann became the first policy maker to provide clues on how much the European Central Bank may raise its inflation forecast next week, saying its likely to be well in excess of figures projected to date on Wednesday in a speech in Slovenia. (Bloomberg)

Irish Independent

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