Eurozone inflation at almost two-year high

BRUSSELS — Eurozone consumer prices rose to a near two-year high in September offering hope that a disputed programme by the European Central Bank (ECB) to stimulate the economy may be delivering.

Picture: REUTERS

The Eurostat statistics agency on Friday said inflation in the 19-country currency bloc rose to 0.4% this month, the first time it had hit that level since October 2014.

Meanwhile, eurozone unemployment was unchanged at a five-year low of 10.1% in August, the agency said, with both figures in line with forecasts by analysts.

The eurozone’s ultra-low inflation is a huge worry for the ECB, whose goal is to keep inflation near 2.0%. Inflation reflects underlying consumer demand in the economy and while double the 0.2% reached in August, the level remains low and means Europe is still short of a fully fledged recovery.

“Concerns about the price growth environment remain high with core inflation stagnating at 0.8% and unemployment stuck above 10%,” said Bert Colijn, senior economist at ING Bank, referring to an inflation measure that excludes oil prices.

Analysts unanimously pointed to energy prices as the cause of the ramp up in inflation. The impact of energy prices weakened to -3% in September from -5.6% in August.

In addition, the still unclear effects of Brexit will pose problems for achieving higher rates of inflation.

Any boost to consumer prices “is likely to be limited by lacklustre eurozone GDP growth, as it is hampered by increased political uncertainties including the UK’s vote to leave the EU,” said Howard Archer of IHS Global Insight.

The ECB in September decided to hold its record-low interest rates steady in a bid to encourage lending and drive up inflation. It also opted to leave intact the bank’s ultra-loose monetary policy, choosing to stay the course with a massive asset-buying programme to the tune of €80bn/month.

“Together, the figures do nothing to challenge our view that the ECB has more work to do to return eurozone inflation to target on a sustained basis,” said Jack Allen, economist at Capital Economics.

The need to do more will irk critics, led by Germany, who say these policies are biting into the savings of Europeans and helping stoke the rise of populist politicians.

The data landed two days after ECB chief Mario Draghi defended his inflation-boosting policies in a tense session at the German parliament. Angry legislators in Germany’s Bundestag warned that the ECB’s fight to stimulate inflation was in fact causing damage to the European economy.

In the unemployment data, youth joblessness remained at a dizzying 47.7% in Greece and 43.2% in Spain. In Germany it was 6.9%.

AFP

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