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Business

Eurozone prices pick up speed

September 30, 2016

Consumer prices in the euro currency area have begun rising more significantly, hitting a near two-year high in September and offering some hope that central bank monetary stimulus might eventually fuel economic growth.

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Deutschland Symbolbild Inflation - Preise Supermarkt
Image: picture-alliance/dpa/J. Stratenschulte

The European statistics office, Eurostat, unveiled new inflation data on Friday, showing that prices in the 19-country eurozone rose 0.4 percent in September - the first time since October 2014 that prices were climbing so rapidly.

September inflation had been twice the level of August's 0.2 percent increase, Eurostat said, reflecting accelerating consumer demand in the currency area. However, the figure is still a far cry from the European Central Bank's (ECB's) inflation target of around two percent, which it considers as healthy for a stable economic development. 

Analysts unanimously pointed to slightly rising energy prices as the cause of higher inflation as their impact weakened to minus 3 percent in September from minus 5.6 percent in August.

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

And Howard Archer of IHS Global Insight told the news agency AFP that driving inflation rates higher would likely be hampered by uncertainty over Britain's decision to leave the European Union. "Any boost to consumer prices is likely to be limited by lackluster eurozone GDP growth, as it is hampered by increased political uncertainties including the UK's vote to leave the European Union."

The ECB earlier this month 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 program to the tune of 80 billion euros a 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.

However, the need to do more is vehemently opposed by ECB critics, notably in Germany, who say these policies are hitting savers across Europe and helping stoke the rise of populist politicians. Earlier this week, angry German lawmakers warned ECB chief Mario Draghi during a meeting in parliament that his policy to stimulate inflation was in fact causing damage to the European economy.

ECB decision: still ‘zero’ incentive to save

uhe/kd (AFP, Reuters, dpa)