Inflation In Euro-area Beats Expectations But Rise May Be Short-lived

- One-off effects drive consumer price growth

- ECB inflation target of near but below 2pct still distant

 

Frankfurt, 20 November 2019 (LS NEWS) – Inflation in the Eurozone spiked in November as prices for services showed strong growth, but analysts warned that much of the increase was due to the new way Germans calculate package holidays.

 

The Eurozone headline rate rose to 1.0pct from 0.7pct in October and beat the market expectation of 0.9pct on strong core inflation, which increased to a seven-month high of 1.3pct versus 1.1pct last month and an estimate of 1.2pct.

 

“We shouldn’t get carried away,” warned Jessica Hinds from Capital Economics. “One-off factors have caused services inflation to spike in the past, most recently in April when the rate also reached 1.9pct before falling back again. And other data released this morning suggest that wage pressures – one of the main drivers of services inflation – are easing.”

 

Consumer price growth hasn’t hit bottom yet, according to Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics. “We suspect the core rate will dip a bit in the next few months, but a gradual increase is consistent with the trend in the labour market and wage growth, indicating that core inflation will rise to just under 1.5pct towards the end of next year.”

 

Price growth in the Big Four

 

Germany, the largest economy in the Eurozone, said Thursday that preliminary EU-harmonised inflation grew at an annual rate of 1.2pct in November, which was in-line with estimates and an increase from October’s 0.9pct.

 

Preliminary inflation data out Friday from France, the Eurozone’s second-largest country, showed a better-than expected increase to 1.2pct from 0.9pct last month.

 

Italy – the currency area’s third-largest economy – said Friday that consumer price growth rose to 0.4pct from 0.2pct last month.  

 

EU-harmonised flash inflation in Spain, the Eurozone’s fourth-largest economy, matched economists’ expectations with an increase to an annual rate of 0.5pct this month, rising from 0.2pct in October.

 

Report says ECB mulling higher inflation target

 

A Bloomberg story published Thursday said the ECB could increase its inflation goal to 2pct from the current objective of near but below that mark. This would offer central bankers the chance to maintain a loose monetary policy even if consumer price growth neared the current target, the report said.

 

--- Eric Culp

@EricCulpLS