Cafe culture nudges Eurozone inflation higher in October

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A file photo dated 02 August 1994 of the Cafe de F
Cafés and restaurants were the largest contributor to the rise in inflation (Source: Getty)

Eurozone annual inflation rose to 0.5 per cent in October, driven by contributions from spending in restaurants and cafes.

Up by 0.1 per cent compared with September, six of the member states recorded annual rates below zero – better known as deflation.

Inflation rose in 21 EU states, which was enough to raise inflation across the region despite falls in six nations, according to data from the European Union’s statistical office.

Spending in restaurants and cafes had the largest sector impact on the Eurozone’s inflation rate, contributing 0.07 per cent of the 0.1 per cent rise, followed by increases in rents and tobacco.

Eurozone inflation has increased significantly over the last year. In October 2015 the annual rate was 0.1 per cent. Analysts expect more rises in the months ahead, fuelled by higher oil prices.

“We expect Eurozone consumer price inflation to trend higher over the coming months, particularly in late-2016 and early-2017. Brent oil prices are now higher year-on-year, which should feed through to see the year-on-year change in energy prices imminently turn positive,” said Howard Archer, chief UK and European economist for IHS Markit.

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Any rises in inflation would be seen as encouragement for the European Central Bank to raise interest rates to reduce the money supply, but for now inflation remains well inside the two per cent long-term target.

Bulgaria and Cyprus both recorded deflation of one per cent at the bottom of the table, while Belgium’s 1.9 per cent rate was the highest in the Eurozone, followed by Austria at 1.4 per cent.

The story for the European Union as a whole, which includes the UK, was identical, with inflation at 0.5 per cent for October, up from 0.4 per cent in September. The UK on Tuesday posted a surprise fall in inflation to 0.9 per cent, although the rate is expected to rise significantly in the longer term as the devaluation of the pound passes through to domestic prices.

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