Eu­ro­zone in­fla­tion run­ning at high­est since April 2014

Daily Local News (West Chester, PA) - - BUSINESS - By Pan Py­las

LON­DON >> Food price in­creases helped push in­fla­tion across the 19-coun­try eu­ro­zone to its high­est rate in two and a half years, of­fi­cial fig­ures showed Wed­nes­day. How­ever, the rise in the an­nual rate to 0.6 per­cent is un­likely to al­ter ex­pec­ta­tions that the Euro­pean Cen­tral Bank will ex­tend its stim­u­lus pro­gram next week.

The rise in the Novem­ber rate as re­ported by Euro­stat, the Euro­pean Union’s sta­tis­tics agency, was some­what of a sur­prise in mar­kets fol­low­ing lower than an­tic­i­pated Ger­man fig­ures. Most econ­o­mists had pen­ciled in an un­changed rate of 0.5 per­cent.

In­fla­tion in the eu­ro­zone is now at its high­est since April 2014, when in­fla­tion stood at 0.7 per­cent.

Euro­stat said food, al­co­hol and tobacco had the big­gest im­pact in push­ing up prices in Novem­ber. The main driver this year in the mod­est pick-up in in­fla­tion from April’s mi­nus 0.2 per­cent has been the fad­ing im­pact of 2015’s sharp fall in oil prices. In Novem­ber, en­ergy prices were only 1.1 per­cent lower than the year be­fore, ac­cord­ing to Euro­stat. That stands in sharp con­trast to the mi­nus 7.3 per­cent recorded in Novem­ber last year.

Like all ma­jor economies, the eu­ro­zone has seen sub­dued in­fla­tion over the past cou­ple of years largely be­cause of the sharp fall in oil prices. That’s one of the rea­sons there is so much in­ter­est in whether the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries, or OPEC, de­cides to cut pro­duc­tion later Wed­nes­day at a meet­ing in Vi­enna, Aus­tria. There are hopes for a deal, and that’s pushed oil prices up 5 per­cent in morn­ing trad­ing.

Though in­fla­tion is push­ing higher, it is still well below the Euro­pean Cen­tral Bank’s tar­get of just un­der 2 per­cent, a level it con­sid­ers right for a healthy economy. Also, the core in­fla­tion rate, which strips out the volatile items of food, en­ergy, al­co­hol and tobacco, re­mains his­tor­i­cally low at an an­nual rate of 0.8 per­cent.

As a re­sult, the ECB is ex­pected next week to ex­tend its bond-buy­ing stim­u­lus pro­gram fur­ther in hopes of get­ting in­fla­tion up to­ward tar­get.

The cen­tral bank is to dis­cuss whether to ex­tend its 1.77 tril­lion euros ($1.9 tril­lion) in bond pur­chases, a stim­u­lus pro­gram that pumps 80 bil­lion euros per month into the eu­ro­zone economy. The pro­gram is in­tended to keep in­ter­est rates in the mar­kets low, which should boost lend­ing and eco­nomic ac­tiv­ity, thereby as­sist­ing a rise in prices.

The ear­li­est end date for the pro­gram is March, 2017. An­a­lysts think the bank may ex­tend that by three or six months. Some think that ECB Pres­i­dent Mario Draghi will also ex­plain how the pro­gram will even­tu­ally be eased out — so-called ta­per­ing — as op­posed to end­ing abruptly.

Bill Adams, se­nior in­ter­na­tional econ­o­mist at The PNC Fi­nan­cial Ser­vices Group, thinks the ECB will “sig­nal at its De­cem­ber 8 meet­ing that a ta­per of its as­set pur­chase pro­gram is likely in 2017, pos­si­bly be­gin­ning as early as April.”

JENS MEYER - THE AS­SO­CI­ATED PRESS

Peo­ple visit a stand dec­o­rated with a nutcracker dur­ing the Christ­mas Fair in Er­furt, cen­tral Ger­many, Mon­day. The Er­furt Christ­mas Mar­ket is one of the most beau­ti­ful Christ­mas Mar­kets in the whole of Ger­many. The square is beau­ti­fully dec­o­rated with a huge, candle-lit Christ­mas tree and a large, hand-carved wooden creche.

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