Eurozone CPI rises to four-year high as expected
Eurozone consumer price inflation increased to a new four-year high expected in February, as energy and food prices climbed.
The headline harmonised consumer price index for the euro area rose to 2.0% from 1.8% in January, according to Eurostat, with energy and food prices up 9.2% and 2.5% year-on-year respectively.
This rise put the headline rate in line with the ECB’s 2% price stability ceiling for the first time since January 2013.
Underlying price pressures remain subdued, with core CPI, which excludes more volatile prices such as energy, remained at 0.9%, which was in line with the consensus forecast.
Other data from Eurostat on Thursday revealed a small fall in the number of unemployed people, which left the euro-zone unemployment rate unchanged at 9.6%.
Looking ahead, economists said recent activity indicators have pointed to healthy economic growth for the bloc, suggesting underlying inflationary pressures may pick up.
With unemployment unchanged at 9.6%, which is close to most estimates of the structural rate, the rise in inflation implied wage growth may be set to rise, said Jennifer McKeown at Capital Economics.
"However, there are few signs of this happening so far, even in Germany where the labour market has been very strong for some time. After its meeting next week, the ECB is likely to reiterate its view that the latest pick-up in inflation will be transitory and we see the Bank carrying out this year’s asset purchases as planned."
Barclays observed that within the basket, price dynamics largely confirmed its view that volatile components continue to drive headline inflation while underlying pressures remain muted.
Non-energy industrial goods prices slowed to 0.2% from 0.5% year-on-year, while service prices edged up to 1.3%.
"Looking ahead, we continue to expect the ongoing headline versus core inflation dichotomy to persist, with headline inflation likely to hit the ECB target again in April this year supported by volatile core services (package holidays and airfares) and non-core (energy and food) prices," Barclays said.
"However, we remain of the view that euro area headline HICP inflation will not stay at such high levels for long. In particular, as base effects from energy fades and unprocessed food prices rally loses momentum, we expect headline inflation to start decline from Q4 onwards towards 1.3% by the end of next year."
As labour market slack in the euro area economy remains substantial, Barclays sees core inflation remaining on a moderate recovery trend through its forecast horizon, with labour market slack dampening wages for "a few more quarters".