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Published: Fri, March 03, 2017
Economy | By Melissa Porter

Eurozone Inflation Hits Four-Year High 2% As Energy Prices Surge

Eurozone Inflation Hits Four-Year High 2% As Energy Prices Surge

Commerzbank's Weil said the European Central Bank will want to wait until the core inflation rate, which strips out volatile factors such as energy, food, alcohol and tobacco, also rises significantly.

It's the first time headline inflation has met the European Central Bank's 'just below 2%' price stability target since January 2013.

With overall savings of 5 trillion euros ($5.28 trillion) and interest rates at zero, an inflation of two percent means German savers are basically losing 100 billion euros per year, he added.

Strategists said lower core inflation, a measure that excludes the effect of sharply rebounding energy prices over the past year, could temper the market reaction because it would signal that consumer price growth may not be durable over time.

Germany, for example, reported a February inflation rate of 2.2 percent on Wednesday - the highest in four and a half years.

The figure was in line with the forecast consensus and left the rate at its highest in over four years but the pick-up entirely reflected higher energy and food inflation, said McKeown.

The increase in consumer prices mirrored a rise in industry prices.

"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. Figures released Thursday by Eurostat showed the eurozone's jobless rate held at 9.6 percent in January, its lowest level since May 2009.

From April, the bank will buy only 60 billion euros (64 billion US dollars) of bonds a month, rather than 80 billion euros.

Food, alcohol and tobacco prices rose at the second fast rate over the month (2.5% compared with 1.8% in January), followed by services and non-industrial goods.

The ECB is now coming under increasing pressure - particularly from the German government - to scale back on that stimulus.

German inflation is even higher than the eurozone average at 2.2 percent.

The ECB is scheduled to run its quantitative easing bond-buying scheme until at least December and has pushed interest rates deep into negative territory to try to stimulate weak growth and hitherto stubbornly low inflation. The core rate has been at 0.9% for the past three months and only increased marginally from 0.8% seen a year ago.

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