Eurozone growth picks up, inflation at 0.9%
December unemployment 9.6%, more than 7-year low
Eurozone inflation jumped in January, economic growth picked up and unemployment fell to a seven-year low, but the rebound looks unlikely to prompt any early rethink of the ECB’s stimulus program as rises in core prices were modest.
Inflation in the 19 countries sharing the euro accelerated to 1.8 percent year-on-year, Eurostat estimated, up from 1.1 percent in December, putting it within range of the European Central Bank’s medium-term target of below but close to 2 percent.
It was the highest rate since February 2013. Core inflation, which excludes volatile prices of energy and unprocessed food and which the ECB focuses on in its policy decisions, was stable at 0.9 percent year-on-year, however.
ECB President Mario Draghi said last Thursday he would look past energy price fluctuations until underlying inflation picked up in a “convincing” way. “With core inflation still weak, it seems unlikely that this will cause the ECB to change course” on its bond-buying program, said Bert Colijn, economist at ING bank. Barring some “serious upside surprise” in core inflation, he did not expect the ECB to start tapering the program until next year.
Energy prices jumped 8.1 percent year-onyear in January after a 2.6 percent increase in December and unprocessed food was 3.3 percent more expensive than a year earlier. Separately, the statistics agency said euro zone gross domestic product rose 0.5 percent quarter-on-quarter in the last three months of 2016, as expected, for a 1.8 percent year-on-year rise. In the whole of 2016, euro zone GDP rose 1.7 percent, down from a five-year high of 2.0 percent in 2015.
“We suspect the eurozone may find it difficult to sustain this momentum amid appreciable political uncertainties during 2017 and likely reduced consumer purchasing power due to higher inflation,” said Howard Archer, economist at IHS Global Insight. Archer sees eurozone GDP growth of 1.6 percent in both 2017 and 2018.
Stronger economic growth also helped bring down the bloc’s unemployment rate to 9.6 percent in December, the lowest since May 2009 before Greece’s debt crisis broke out. “This starts to get closer to figures that would justify more wage pressures, but it seems unlikely that this will happen in a meaningful way in the first half of 2017,” Colijn said. “Nevertheless, the ECB will look at this batch of data with a mix of joy and concern as it does show that the economy is moving in the right direction, but it will probably bring out the hawks early,” he said. — Reuters