FRANKFURT, March 31 (Reuters) - Euro zone inflation jumped in March, taking another step higher in what is likely to be a temporary but sharp climb that may put consumer price growth above the European Central Bank’s near 2% target later this year.
Inflation in the 19 countries sharing the euro accelerated to 1.3% in March from 0.9% a month earlier, up from a string of negative readings late last year but in line with analysts’ expectations, a flash estimate from Eurostat, the European Union’s statistics office, showed on Wednesday.
Inflation picked up on higher energy and non-processed food prices but services costs were in line with the headline figure and non-energy industrial goods inflation fell sharply.
The ECB had already predicted the surge, warning that inflation may even exceed its target by the close of the year, but has promised to look past what it expects to be a temporary spike. It then sees inflation languishing beneath its target for years to come.
Indeed, underlying inflation, more closely watched by the ECB in its policy deliberations, actually slowed in March, confounding market expectations for steady readings, which is likely to disappoint policymakers.
Prices excluding volatile food and energy prices, which the ECB defines as core inflation, slowed to 1% from 1.2% while an even narrower measure which excludes alcohol and tobacco prices slowed to 0.9% from 1.1%.
Economists argue that the inflation rise is mostly technical and is due to factors such as the reversal of last year’s oil price collapse and a German value-added tax hike.
But underlying fundamentals still point to weak growth and huge slack in the economy. The currency bloc’s economy will not reach its pre-pandemic size before late 2022 and key wage deals struck in recent weeks point to sluggish pressure on household earnings.
The euro zone’s underwhelming fiscal response to the crisis and a possible delay in the distribution of European Union recovery funds also support the ECB’s case for looking past this year’s inflation rise.
“The factors driving the move – food, energy prices, statistical effects from tax hikes and some service sector price rises once lockdowns end – are transitory in nature and inflation will fall sharply from the start of next year onwards,” ABN Amro said in a note to clients.
For more detail on Eurostat's inflation data, click on: here (Reporting by Balazs Koranyi; Editing by Catherine Evans)
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March 31, 2021 at 04:02PM
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Euro zone inflation continued to surge in March - Reuters
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