Eurozone inflation rate climbs above 2% on energy prices

Eurozone inflation accelerated in September amid a surge in energy costs, while underlying price moves remained more subdued.

At 2.1%, inflation has now been above the European Central Bank’s (ECB) goal for a fourth month. A measure that strips out volatile components such as energy and food unexpectedly fell back to 0.9%.

The ECB aims to keep the headline rate just under 2% in the medium term.

The central bank intends to end asset purchases this year after buying €2.6trn worth of debt. At the same time, it pledged to keep interest rates at record lows through the summer of 2019. But faster inflation in some parts of the region has sparked calls for a more ambitious approach.

Price growth in Germany, Europe’s largest economy, unexpectedly jumped to a four-month high this month. If eurozone inflation remains stuck above 2%, the ECB should consider raising borrowing costs earlier than currently planned, said Clemens Fuest, president of the country’s Ifo institute.

That sentiment is also shared by some people in the central bank. Governing Council member Ewald Nowotny of Austria has argued there may be a case for tightening policy sooner. And even though Executive Board members Peter Praet and Benoit Coeure say stimulus is still warranted, they have shifted their focus on communicating when and how fast interest rates will rise.

ECB President Mario Draghi has pointed to a “relatively vigorous” pickup in underlying price pressures as one reason for his confidence that policy makers can reach their inflation target of below but close to 2% in the medium term. Solid growth fueled by domestic demand has pushed unemployment to a decade-low and bolstered wages.

But risks persist. A hard Brexit, investor concern about Italian fiscal policy, emerging-market turmoil and an escalating trade war between the world’s two largest economies all have the potential to derail the region’s recovery.

Economic confidence in the eurozone slid for a ninth month in September, growth prospects for Germany deteriorated and the World Trade Organisation downgraded its view of global commerce.