Boost for ECB as Eurozone inflation reaches highest point since 2013
Eurozone inflation rose to its highest point since 2013 as higher oil prices fed through to the big increase, in welcome news for efforts by the European Central Bank (ECB) to boost Europe's economy.
The annual rate of inflation rose to 1.1 per cent in December, according to flash estimates from the European Commission, almost double the 0.6 per cent from November.
A sharp increase in oil prices drove most of the rise, after the historic agreement by the Organization of the Petroleum Exporting Countries (Opec) to cut prices. A barrel of Brent crude oil – the North Sea benchmark – now costs over $55 per barrel, up from November lows of $44 per barrel.
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The big rise was widely expected after analysts digested Wednesday’s sharp rise in German inflation.
However, core inflation – which excludes the most volatile prices, including oil – only edged up to 0.9 per cent, from 0.8 per cent, although this still beat economists’ expectations.
The biggest non-energy price rises were present in fresh food – up 2.1 per cent – followed by services, which became 1.2 per cent more expensive year on year.
The increase in inflation will be closely watched by the European Central Bank (ECB), who meet in two weeks’ time to discuss monetary policy.
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ECB president Mario Draghi has made it clear the bank remains committed to accommodative monetary policy, including an extended programme of bond-buying (or quantitative easing). However, pressure will build for the bank to withdraw the market support as Eurozone inflation approaches its legally mandated target of near but below two per cent.
Oliver Kolodseike, senior economist at the Centre for Economics and Business Research (Cebr), said: "Stronger inflation is welcome news for ECB policymakers in Frankfurt and is likely to add to calls from the bank’s hawks to gradually move towards a stabilisation of monetary policy."
Recent falls in the value of the euro against the dollar – it has fallen by over six per cent since its November peak – could also boost inflationary pressures, although there seems little sign so far.
Paul Sirani, an analyst at Xtrade, said: “Not everything may be as rosy as it seems. Despite these positive numbers, weakness in the price of everyday goods continues to be masked by rising oil prices in the wake of continued Brexit uncertainty.”