Eurozone inflation highest for over two years

Posted on September 30, 2016

Customers push shopping carts as they browse products on offer inside a Carrefour SA supermarket in Portet sur Garonne, near Toulouse, France, on Tuesday, March 5, 2013. Carrefour's stock has risen 47 percent since Georges Plassat's arrival as chief executive officer, partially offsetting a 71 percent decline in the preceding five years. Photographer: Balint Porneczi/Bloomberg©Bloomberg

Eurozone consumer price inflation hit its highest level in more than two years in September, climbing to 0.4 per cent, as the effects of the recent fall in oil prices faded.

The CPI increase was in line with expectations and represented an acceleration from the 0.2 per cent figure seen in August.

    Services provided the bulk of the growth in prices, with inflation up 1.2 per cent. Energy prices, meanwhile, fell 3 per cent, although this was a less sharp drop than the 5.6 per cent in August.

    But core inflation, which strips out the effect of volatile areas such as food and energy prices, remained flat at 0.8 per cent, disappointing economists who had hoped that the European Central Bank’s recent monetary action would have had more of an impact.

    Commenting on the figures on Friday, Jack Allen at Capital Economics said the ECB had “more work to do to return eurozone inflation to target on a sustained basis”.

    In the European Parliament this week, Mario Draghi defended the central bank’s quantitative easing programme, arguing it was “working”.

    Bert Colijn, economist at ING, said that while that was “probably the case, the impact on some key indicators has not been more than limited for now”.

    Figures from earlier in the week revealed that Spanish inflation turned positive for the first time in two years in September, while Germany hit its highest level of inflation in a year.

    Unemployment across the eurozone remained stable, stuck at 10.1 per cent — down from 10.7 per cent the year before but flat from July, according to other figures from Eurostat, as recent improvements in the labour market begin to taper.

    [ECB has] more work to do to return eurozone inflation to target on a sustained basis

    – Jack Allen, Capital Economics

    Across the whole EU, the total unemployment rate remained flat at 8.6 per cent. The Czech Republic has the lowest rate in the bloc, with just 3.9 per cent, followed by Germany where 4.2 per cent are out of work. The highest rates were found in Spain — 19.5 per cent — and Greece, where 23.4 per cent are unemployed.

    “Stubbornly weak core inflation and stuttering labour markets suggest that the ECB may yet have some work to do,” said Howard Archer, an economist at IHS Global Insight.

    Youth unemployment fell a little, but still remained stubbornly high in some countries. Across the eurozone, youth unemployment dropped to 20.8 per cent in August from 20.7 per cent the month before.

    Huge differences between countries in the eurozone remain when it comes to young people without jobs. While just 6.9 per cent of young Germans are out of work, this figure is nearly seven times higher in Greece, where 47.7 per cent of youths are unemployed. In Spain, youth unemployment is 43.2 per cent, while in Italy it has hit 38.8 per cent.

    Chart: Eurozone inflation

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