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Eurozone inflation above target for first time in 4 years

04 March 2017

Rising fuel prices boosted Eurozone inflation again last month to reach two per cent for the first time in four years.

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 increase has been mostly driven by higher energy prices (+9.2%) and partly by food prices (+5.2%).

The ECB will remain wedded to its current monetary policy stance despite the further rise in Eurozone inflation to 2 percent and recent decent Eurozone economic news, IHS Markit Economist Howard Archer said.

Annual inflation was measured at 2% for February, Eurostat said, up from a 1.8% reading in January.

Strategists said lower core inflation, a measure that excludes the effect of sharply rebounding energy prices over the previous year, could temper the market reaction because it would signal that consumer price growth may not be durable over time.

Jens Weidmann of Germany said Wednesday that current low borrowing rates offer "few incentives for governments to consolidate their budgets" since debt does not incur high interest costs.

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"After its meeting next week, the ECB is likely to reiterate its view that the latest pickup in inflation will be transitory and we see the Bank carrying out this year's asset purchases as planned", said Jennifer McKeown, chief European economist at Capital Economics. Figures released Thursday by Eurostat showed the eurozone's jobless rate held at 9.6 percent in January, its lowest level since May 2009.

"If these figures are confirmed for the euro zone as a whole, the European Central Bank should reduce its bond purchases by 10 billion euros a month from April", Fuest suggested.

The strong economy enables companies to pass on higher costs - such as increased import prices - to customers, pushing up overall inflation.

But the main event in the euro zone on Thursday was flash inflation for February due at 1000 GMT.

In December, the European Central Bank chose to continue bond purchases through the end of this year while reducing them from 80 billion euros ($84 billion) a month to 60 billion euros a month from April.

The German central bank has warned that homes in large German cities are 15 to 30 percent overpriced, stoking fears about the side-effects of the ECB's stimulus. Prices were expected to rise 1.9 percent in February.

Eurozone inflation above target for first time in 4 years