Eurozone inflation up beyond forecasts
Eurozone inflation surged beyond expectations last month, mild relief for the European Central Bank, even if much of the jump was likely related to seasonal effects due to the timing of Easter.
Inflation in the 19 countries sharing the euro accelerated to 1.7 per cent in April from 1.4 per cent a month ago, beating expectations for 1.6 per cent, Eurostat data showed on Friday.
More crucially, underlying prices excluding food and energy, a figure closely watched by the ECB, picked up to 1.3 per cent from 1 per cent, erasing a worrisome dip a month earlier and hitting its highest rate since October on a jump in services costs.
The ECB targets inflation just below 2 per cent but has undershot this for the past six years even as it deployed an arsenal of conventional and unconventional tools to boost growth and prices.
Target still distant
But any relief from solid April figures is likely to be short lived as the ECB expects inflation to slowly sink this year and not hit its target over the next three years.
“We don’t think that the ECB will read too much into this print,” Morgan Stanley said in a note to clients. “As before, it will probably want to look through the Easterrelated volatility in the core metric, which remains low when stripping out these effects.” Indeed, the ECB has already announced plans to provide even more stimulus through a new round of ultra cheap loans to banks to help the economy.
It now expects interest rates to stay steady through the year but risks are skewed towards an even later lift-off as markets price no hike for the better part of the next two years.
The problem is that growth is faltering, mostly as Germany, the bloc’s powerhouse, struggles through an unexpected dip caused by weak export demand.