Eurozone inflation spikes to highest in over 3 years

A child laughs as she tries to catch soap bubbles created by a street artist, in Lisbon’s Comércio Square, Portugal

Surging oil prices caused inflation in the 19-country eurozone to spike in December to its highest rate in more than three years, official figures showed yyesterday.

Eurostat, the European Union’s statistics agency, said the annual inflation rate rose to 1.1 percent from November’s 0.6 percent. December’s rate was the highest since Sept. 2013, when inflation also stood at 1.1 percent.

The figures are likely to cheer policymakers at the European Central Bank who through various stimulus efforts in recent years have sought to get inflation toward their target of just below 2 percent.

The main contributor to the increase was a sharp rise in energy prices. Eurostat said they were up 2.5 percent in the year to December compared with a 1.1 percent drop in November. In December, oil prices rose sharply after major crude-producing nations agreed to cut output levels and are now trading well above USD50 a barrel.

Still, there are likely to be lingering concerns at the ECB that, when excluding energy costs, inflation remains muted. The core rate, which strips out the volatile items of alcohol, energy, food and tobacco, rose to only 0.9 percent from the previous month’s 0.8 percent.

A separate survey yesterday provided some evidence that the spike in inflation will likely continue over the coming months.

Financial information company IHS Markit found in a closely monitored survey of economic activity across the eurozone that price increases for companies input costs surged to a five-and-a-half year high in December. This, it said, reflected a combination of higher fuel and oil prices alongside increased import costs due to the weaker euro exchange rate.

The firm also found that output charges — what companies price their goods at — rose for the second month running and at the steepest pace since July 2011.

Eurozone business activity as a whole accelerated in December to its highest level of growth since May 2011, the same survey found.

IHS Markit’s composite purchasing managers’ index — a broad gauge of business activity across the manufacturing and services sectors — rose to 54.4 points in December from 53.9 the previous month. Anything above 50 indicates growth.

The firm said that manufacturing led the acceleration, which points to quarterly economic growth of 0.4 percent. That’s better than it has been for most of 2016 but is still modest compared with the United States.

IHS Markit’s chief economist, Chris Williamson, said it’s too early to say whether the economic performance at the end of 2016 represents the “much-needed springboard” to further growth this year.

“Much depends on political events over the course of the next year,” he said. “The concern is that domestic demand is likely to remain subdued over the course of 2017 as political uncertainty dominates, resulting in another year of disappointing growth across the region as a whole.” AP