Eyes on ECB interest rates, as inflation in Eurozone jumps to a 26-month high

Julian Harris
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INFLATION across the Eurozone increased to 2.2 per cent in December, its highest level for over two years, it was estimated yesterday.

The jump of 0.3 per cent from November’s rate takes consumer price index (CPI) inflation above the European Central Bank’s (ECB) target of “just below” two per cent.

It is the first time since November 2008 that the target has been breached in the Euro area, according to statistics compiled by the European Union’s Eurostat office.

Yet analysts believe that the higher than expected rise was due to global increases in energy and food prices.

“Core inflation, excluding food, energy, alcohol, and tobacco probably stayed at around one per cent, confirming that underlying price pressures in the Eurozone have remained subdued,” said ING’s Martin van Vliet.

“Today’s above target reading will probably raise some eyebrows at the ECB,” van Vliet added, “but it should not be cause for alarm -- the chances of a rate hike from the ECB before the end of this year still appear modest.”

However, some economists expect the ECB to be forced to raise rates.

“We predict Eurozone inflation of two per cent this year – so it will no longer look appropriate for the ECB to keeprates at historical lows,” said Thomas Mayer of Deutsche Bank.

“We think that the ECB will have to move interest rates upwards in the second half of the year,” he said.