Eurozone inflation hits ECB target
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Eurozone inflation hits ECB target

Updated: 14:30 03-03-2017

Eurozone inflation in February hit the European Central Bank's 2.0 percent target for the first time since 2013 as its massive economic stimulus appeared to be finally paying off, figures showed Thursday.

Unemployment in the 19-country single currency area in January meanwhile was 9.6 percent, unchanged from December but holding at its lowest rate since May 2009, the Eurostat statistics service said.

Analysts said the figures showed consumers have largely put aside immediate concerns over Brexit and the new US administration but while last year's economic pick-up continues, further gains might be limited.

Higher oil and food prices have stoked inflation in the last year but they seem to have peaked out for the moment, they noted.

Analysts surveyed by Factset expected 2.0 percent inflation after prices jumped 1.8 percent in January following 1.1 percent in December.

The Eurostat statistics service said the last time inflation was at 2.0 percent was in January 2013.

Jennifer McKeown at Capital Economics said she expected the increase to 2.0 percent to "prove temporary … (as) underlying price pressures remain subdued."

There was no sign either of increased wage pressures, meaning the ECB "is likely to reiterate its view that the latest pick-up in inflation will be transitory," she said.

ECB chief Mario Draghi said last month he saw no need to change course and the economy still required the central bank's support.

"We should not react to individual data points and short-lived increases in inflation," Draghi said.

- ECB on hold -

Howard Archer at IHS Markit said he did not expect inflation to rise much further and it could even fall back to around 1.6 percent by the end of the year.

Archer said that while some at the ECB might argue the latest figures show it is time for change, he believed Draghi would not budge.

"The ECB has made it very clear that it wants to see sustained, decisive evidence that underling eurozone inflationary pressures are picking up," he said.

The ECB was also "very aware that there are appreciable uncertainties ahead, especially political ones," he said, citing elections in the Netherlands, France and Germany, the Brexit talks and the Trump administration.

Inflation is a key indicator of underlying consumer demand and the ECB adopted its just under 2.0 percent target with the aim of ensuring a modest but sustained increased in prices, the sign of a healthy economy.

The 2008 global financial crisis however brought the eurozone to its knees as governments slashed spending and hiked taxes, crushing demand in the process and putting the economy into deep recession.

In response, the ECB has poured trillions of euros into the banking system to provide cheap credit for businesses to expand and invest, in turn creating much-needed jobs.

Up to now, however, progress has been slow and there is still ground to make up — the jobless rate ran at 7.5 percent before the 2008 financial crash.

Source: AFP Published: 15:30 02-03-2017

Posted by on March 2, 2017.

Categories: Business, Business World News

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Updated: 21:46 26-May-2018