Euro zone inflation rises past ECB target on energy, food costs

The ECB targets inflation at just below 2 per cent and has unleashed unprecedented stimulus to revive price growth which has missed this target for five years running. — Reuters pic
The ECB targets inflation at just below 2 per cent and has unleashed unprecedented stimulus to revive price growth which has missed this target for five years running. — Reuters pic

BRUSSELS, June 29 ― Euro zone inflation rose to its highest rate in more than a year this month as surging energy prices pushed price growth above the European Central Bank's target, even if only temporarily, data from Eurostat showed today.

Inflation in the 19 countries sharing the euro rose to 2 per cent in June from 1.9 per cent a month earlier, in line with analyst expectations as a big surge in energy costs more than offset a muted rise in the price of services and industrial goods.

The ECB targets inflation at just below 2 per cent and has unleashed unprecedented stimulus to revive price growth which has missed this target for five years running after a double-dip recession.

While the latest figures are in line with its objective, inflation is set to slow as the one-off rise in energy costs passes through the numbers.

Indeed, inflation is not expect to hit the ECB's target in a more sustainable way before 2020, suggesting that any removal in central bank stimulus will be incremental, at best.

In a clear sign that underlying inflation is still muted, price growth excluding volatile food and energy costs, an item closely watched by policymakers, even slowed last month, easing to 1.2 per cent from 1.3 per cent, as services inflation slowed sharply.

Another core inflation measure, which also excluding alcohol and tobacco prices and tends to be watched by market analysts, eased to 1.0 per cent in June, from 1.1 per cent in May, meeting expectations.

Still, figures are unlikely to impact ECB policy for now as a set of big decisions this month put the bank on auto pilot at least for a few months.

The euro barely moved on the data and bond yields were broadly unchanged from prior to the release.

Policymakers agreed this month to end a €2.6 trillion (RM12.2 trillion) bond purchase scheme by the close of the year but also pushed out its first rate hike until after the summer of 2019, tempering market expectations for further policy tightening.

With the threat of a global trade war, a general slowdown in growth and unclear budget policies from the new Italian government presenting downside risks for the ECB, analysts argue that an even later move in rates is possible.

Energy prices were up 8.0 per cent year-on-year, while unprocessed food was 3.0 per cent more expensive.

Eurostat's flash estimate for the month does not include a monthly calculation. ― Reuters

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