Higher energy prices drive Eurozone inflation to hit two per cent for the first time in four years

Courtney Goldsmith
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Eurozone inflation is rising as oil prices continue to edge up (Source: Getty)

Eurozone inflation hit two per cent in February, beating the European Central Bank (ECB)’s target for the first time since January 2013.

The year-on-year rate of inflation rose from 1.8 per cent in January according to flash estimates from the European Commission.

The sharp rise over the months since November has mainly been driven by the growing costs of energy and food. Benchmark Brent crude oil prices are now hovering around the $55 a barrel point, up from lows of $44 per barrel in November.

Year-on-year energy prices increased 9.2 per cent in February, up from 8.1 per cent in January. Food, the second biggest riser, edged up 2.5 per cent in February year-on-year, up from 1.7 per cent in January.

February was the third straight month the rate rose higher than expected, said Fawad Razaqzada, market analyst at Forex.com.

However, core inflation, which does not include the most volatile prices like energy and food, was stable at 0.9 per cent, having last risen in December from 0.8 per cent.

The European Central Bank (ECB)'s target is close to, but just below two per cent for the headline measure, but ECB president Mario Draghi has repeatedly emphasised his determination to "look through" inflationary rises that are not sustainable.

IHS Markit said Eurozone inflation is unlikely to rise much further from two per cent, though it may edge up in the short term. The firm suspects it will fall back later in the year as year-on-year energy prices moderate.

"We see Eurozone inflation ending 2017 around 1.6 per cent, and it may well hover around this level in 2017."

The ECB is due to meet next week and is unlikely to be swayed from its current stimulus programme, analysts have said.

Chris Saint, analyst at Hargreaves Lansdown, said with the steadiness of the core measure for the third month in a row is likely to reinforce the ECB’s view that underlying inflation pressures remain subdued.”

In February the ECB said it will continue to “look through” rises in headline inflation as Europe faces a balance of risks “tilted to the downside”.

The governing council said it will “look through the volatility in short-term data if judged transient and to have no implication for the medium-term outlook for price stability".

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