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FRANKFURT – Eurozone inflation accelerated to a record of 5.1 percent in January, defying expectations of a slowdown and adding to the European Central Bank’s headache ahead of its policy meeting on Thursday.
High prices were primarily driven by energy, which spiked to 28.6 percent, compared to 25.9 percent in December, according to the EU statistics agency’s flash estimate. The next-highest increases were in food, which was up by 5.2 percent after rising 4.7 percent last month.
A possible silver lining was in core inflation, which excludes volatile components like energy, food, alcohol and tobacco. It eased to 2.3 percent from 2.6 percent in December. While the ECB targets headline inflation, it closely watches core prices as an indication of medium-term price developments.
Consumers suffered the sharpest price increases in Lithuania (12.2 percent), Estonia (11.7 percent) and Belgium (8.5 percent). Inflation was weakest in France (3.3 percent), but even there, prices ran ahead of the 2 percent target.
The ECB has long argued that the inflation highs driven by price spikes from energy and supply-side bottlenecks should wash out over time and push it below the 2 percent target rate in 2023 and 2024. However, at the last policy meeting in December, some Governing Council members warned that inflation “could easily turn out above 2 percent” given that it had topped their expectations time and again.
On that point, Bundesbank chief economist Jens Ulbrich warned on Monday that the latest inflation trends suggest there’ll be a need for a “noticeable upward revision” to German inflation forecasts that were published in December,.
But the ECB is widely expected to keep policy on hold when it meets Thursday, as it waits for any more substantial signals until March, when new forecasts will be available.
Source: Politico
