BRUSSELS/FRANKFURT- Euro zone inflation jumped as expected last month, offering some temporary relief for European Central Bank policymakers before price growth is expected to dip again.
Eurostat said on Tuesday that inflation in the 19 countries sharing the euro currency rose to 1.3 percent as expected in December from 1.0 percent a month earlier as energy prices rebounded and the cost of food products rose.
With inflation running well below its target of nearly 2 percent, the ECB has been providing unprecedented stimulus for years and weak economic growth has increased the risk that even more central bank help will be needed before price pressures build.
Prices excluding food and energy costs, an underlying gauge closely watched by the ECB’s policymakers, held steady at 1.4 percent last month while an even narrower gauge, which excludes alcohol and tobacco prices, was unchanged at 1.3 percent.
Adding to the relatively positive data, Eurostat said that retail trade, an indicator of household demand, was much stronger than expected in November, rebounding from two consecutive monthly falls to a 1.0 percent monthly rise.
The relief for the ECB may be short lived, however, as leading indicators point to weak growth ahead with no significant rebound in sight, particularly for Germany’s vast industrial sector.
Inflation is also likely to dip back towards 1 percent in the first half of the year before rising again, ending 2020 broadly where it started.
Geopolitical tensions, which have pushed oil prices higher in recent days, could lift price growth but uncertainty could cut into economic activity, negating the effect of higher oil prices, analysts say.
But even if inflation slows, the ECB is unlikely to take policy action any time soon as the bank has exhausted much of its firepower and its September stimulus package will provide accommodation for months to come.
The bank is also about to launch a broader review of its policy strategy and no major shift is likely before the review concludes at the end of the year.
The ECB will next meet on Jan. 23, when it is expected to launch its policy review. – Reuters