Eurozone inflation overshoots European Central Bank target to hit 2% in February

Brittany BishopMar 04, 2017

The ECB will remain wedded to its current monetary policy stance despite the further rise in Eurozone inflation to 2 percent and recent decent Eurozone economic news, IHS Markit Economist Howard Archer said.

Inflation is a red flag for many Germans as the country suffered from depreciation of money and mass unemployment in the 1920s.

The return of inflation will ultimately pave the way for rising interest rates.

The EU28 unemployment rate was 8.1 percent in January versus 8.2 percent in December.

Eurostat, the European Union's statistics agency, said Thursday that consumer prices across the eurozone were 2 percent higher in the year through February.

A similar rate was last seen in January 2013 and was the highest since December 2012, when inflation was 2.2 percent. "But the bank will no doubt recall that the inflation target has to be reached over the medium term and for the whole of the Eurozone".

The increase has been mostly driven by higher energy prices (+9.2%) and partly by food prices (+5.2%).

"The rising inflation in Germany supports the notion that preparations should start for an exit from the expansive monetary policy in Europe", Ifo institute head Clemens Fuest told FAZ newspaper.

She said the firm expects the bank will keep its commitment to its continuing its bond buying programme until the end of the year, and longer if necessary. The increase is above the 2.1 percent forecast by economists in a Bloomberg survey and follows a reading of 1.9 percent the previous month.

But the main event in the euro zone on Thursday was flash inflation for February due at 1000 GMT.

Inflation figures due out Thursday could intensify pressure on the European Central Bank to signal when it intends to start withdrawing the bond-purchase stimulus, known as quantitative easing.

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

A sustained rebound in German inflation would give Bundesbank President and European Central Bank rate setter Jens Weidmann more grounds to argue for a reduction in the ECB's bond-buying programme, a scheme that he has often criticised.

The German central bank has warned that homes in large German cities are 15 to 30 percent overpriced, stoking fears about the side-effects of the ECB's stimulus.

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