Inflation in the eurozone ticked up in September, data showed yesterday, giving the European Central Bank some confidence its stimulus programme is pulling the bloc’s economy away from the deflationary brink.
Consumer prices grew by 0.4 per cent, twice as fast as in August, Eurostat data showed, moving further away from the sustained and economically dangerous fall in prices that can accompany economic crises.
The improvement, while small, will ease pressure on the ECB to expand its €1.74 trillion and counting money-printing programme. Some rate setters, such as board member Sabine Lautenschlaeger, have been arguing for delay in a new boost to allow the programme to work first.
September’s improvement was mainly due to a smaller decline in energy prices, which had been pummelled by a drop in the market value of oil.
The price of oil has stabilised and it rebounded this week after the Organization of the Petroleum Exporting Countries flagged its first output cut in eight years.
An increase in oil prices over time is going to help inflation higher
“We know central banks have run out of ammunition so an increase in oil prices over time is going to help inflation higher,” Kenneth Broux, a strategist at Societe Generale, said.
“If expectations of oil prices increase, in the long run it’s going to bring back some investment, which is positive for inflation and growth.”
When energy prices are stripped out, inflation came in at 0.8 per cent in September, missing market expectations for a 0.9 per cent reading. Inflation minus energy and food prices was also at 0.8 per cent.
Both headline and core inflation are well below the ECB’s target of almost two per cent.
This showed the ECB’s job was far from done.
“The main negative surprise was to core prices... suggesting that the outlook for underlying inflation remains surrounded by downside risks,” Barclays economist Fabio Fois said in a note.
The eurozone data came a day after signs of growing inflation in Germany and Spain, the bloc’s No. 1 and No. 4 largest economies.
German inflation hit its highest level in 16 months and Spanish consumer prices rose for the first time since May 2014.
The ECB expects the bloc’s inflation to average 0.2 per cent this year before jumping to 1.3 per cent in 2017, mainly thanks to higher energy prices, and 1.6 per cent in 2016.