Eurozone inflation reached its highest point in two and a half years in November, ahead of next week’s meeting of the European Central Bank (ECB) to discuss interest rates.
The annual rate of inflation rose to 0.6 per cent in the month, driven by continued strength in the price of services, according to an early estimate from the European Union’s statistical body.
October inflation had previously risen to 0.5 per cent, continuing a steady upward trend from after April's fall of 0.2 per cent.
The services component of inflation stayed steady from last month at 1.1 per cent, while food, alcohol and tobacco contributed to the rise, posting a 0.7 per cent rise compared with 0.4 per cent in October.
The rise will boost ECB president Mario Draghi’s contention that the ultra-low interest rate policy since the Eurozone crisis has helped to fuel the European economy. Draghi has been relatively clear that the ECB will not raise interest rates at its next meeting.
However, much speculation remains as to whether the ECB will continue its policy of quantitative easing – another form of monetary stimulus – beyond March 2017.
While the rise in inflation indicates consumer prices are increasing, a steady rate of inflation is seen as a sign of a healthy economy. The ECB, like many other central banks, is mandated to use interest rates and other measures to bring inflation closer to (but still below) two per cent.
Howard Archer, chief UK and Europe economist at IHS Markit, said: “The muted November core inflation data highlight that the ECB cannot relax on the inflation front yet, even if the headline rate looks primed to rise appreciably over the next few months.”
“On balance, we believe that the odds pretty strongly favour the ECB deciding that more stimulus is justified at its 8 December meeting and we expect it to extend its asset buying purchase programme by six months to September 2017, or beyond if necessary,” he added.