Inflation in the Eurozone perked up in August on the back of rising fuel prices, with investors keenly awaiting signs from the European Central Bank (ECB) on the future of quantitative easing.
The headline inflation rate rose to 1.5 per cent annually, the European Commission reported today, above the 1.4 per cent consensus expectations.
That represented the fastest pace of consumer price rises since April, as energy prices rose by four per cent annually.
Core inflation, which strips out energy prices along with other volatile components such as food, stayed steady at 1.2 per cent annually.
The August reading is the last before the ECB’s top economists meet next Thursday to announce their latest monetary policy decision, with the central bank’s €60bn (£55bn) programme of monthly bond purchases under scrutiny.
The steady inflation reading will allow the ECB to start the process of reducing its asset purchases, according to Florian Hense, an economist at Berenberg bank.
He said: “We and the ECB expect core inflation to drift up gradually on trend – the prospect of which is enough for the ECB to announce next week that they are starting to discuss the options of tapering – without committing to anything, yet.”
The taper, when it arrives, will mark another highly symbolic moment in the efforts of the major Western central banks in bringing quantitative easing to an end after almost a decade of the unorthodox stimulus efforts.
While the removal of the stimulus should theoretically cause a tightening of the money supply, the rise in inflation has added “new fuel” to the debate on timing the taper, according to Kay Daniel Neufeld, a senior economist at the Centre for Economics and Business Research. However, any decision is likely to come after the 7 September meeting.