Monday 23 April 2018

Fears of rise in interest as inflation fails to hit target

Thomas Molloy

INFLATION in the eurozone stayed well above the European Central Bank's target in January, new figures showed yesterday, stoking fears that the central bank will be forced to raise interest rates sooner rather than later.

Surging oil prices, which almost certainly pushed inflation even higher in February, could heap further pressure on the ECB to raise rates for the first time since July 2008.

Central banks from Beijing to Madrid are battling with high inflation as oil and commodity prices surge. Inflation in Britain recently hit 4pc, while both Russia and Sweden recently raised interest rates to combat rising prices.

The European Union statistics office Eurostat revised down its estimate for consumer price growth in the 17 countries using the euro to 2.3pc year-on-year from an earlier projection of 2.4pc. That was higher than the 2.2pc in December.

In Ireland, prices fell 0.2pc in January when using EU measurements, emphasising how Ireland was at another stage in the economic cycle to mainland Europe.

"The fact remains that eurozone consumer price inflation is still at a 27-month high and set to rise further in the near term due to the spike in oil prices as well as elevated commodity and food prices," said Howard Archer, an economist at IHS Global Insight.

Fuels for transport added 0.58 percentage points to the overall year-on-year reading and the rising costs of heating oil 0.19 percentage points. Electricity price rises added another 0.11 points and gas prices 0.1.

Crude oil prices have surged 40pc over the past six months, adding to ECB fears about rising price pressures.

ECB council member Yves Mersch said last week that officials might toughen their tone on inflation at this Thursday's rate meeting, signalling a readiness to raise borrowing costs over coming months.

ECB executive board member Juergen Stark said last week that the central bank was prepared "to act decisively and immediately" if needed to maintain price stability.

The European Central Bank wants to keep inflation below, but close to, 2pc over a two-year horizon.

The bank said inflation was likely to peak in March, but that, on average, inflation in the eurozone might stay above 2pc this year.

Irish Independent

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