Early estimates for the annual inflation rate for the Euro area are a rise of 0.5% in the space of one month, up to 1.1% in December, from 0.6% in November.
Figures released on Wednesday revealed energy is expected to be the biggest climber, rising from -1.1% in November to 2.5% in December 2016, closely followed by services and food, alcohol and tobacco which should both stand at 1.2% by the end of the month.
The ‘bullish’ inflation figures were a sign of support for ECB president Mario Draghi’s continued commitment to quantitative easing said Alex Lydall, head of dealing at Foenix Partners.
“2017 started with a bang for the bloc state with a bullish uplift in inflation levels for December recording 1.1% comfortably above the prior 0.6%,” he said. “Recent policy action at the end of 2016 saw Draghi’s hand forced extending quantitative easing as prior monetary policy adjustments had failed to filter down into the eurozone economy.”
He added that although the data was a ‘step in the right direction’, problems in the Italian banking system and government were ‘rife’ and there was unease as the Euro bloc approaches elections in both France and Germany.
Lydall continued: “Higher inflation this month could likely be linked to oil prices, but is a step in the right direction as a crucial year is upon the bloc state – keep populist movements at bay and Euro-sceptics could remain exactly that, sceptical and unjustified.”
Services is the largest component of Eurozone inflation and accounts for 44.2% of overall individual spending, it was expected to record a 0.1% increase in December.
While food, alcohol and tobacco and energy account for 19.5% and 9.7% respectively, they only count for less than a third of spending. However, together they have a significant impact on rates as their levels fluctuate more significantly and both saw a 1.2% rate in inflation.
