Consumer prices climbed from 1.8% to 2% between January and February, matching market expectations and hitting the ECB’s inflation target.
However, the core inflation rate, which excludes items subject to price volatility like energy and unprocessed food, remained unchanged for the third consecutive month at 0.9%.
It was precisely that recent surge in energy prices that the European Commission identified as the key driver of the acceleration in inflation. Energy prices were 9.2% higher in February than a year ago
Food, alcohol and tobacco prices rose at the second fast rate over the month (2.5% compared with 1.8% in January), followed by services and non-industrial goods.
“Despite the ECB hitting its 2% inflation target in February, it is likely to remain cautious on the sustainability CPI maintaining this rate,” speculated Investec Wealth & Investment bond strategist Shilen Shah.
ECB president Mario Draghi has previously warned that the central bank will not tighten policy in response to a “short lived” surge in inflation.
Shah agreed that Draghi and co would hold off any drastic loosening of monetary policy
“Looking below the bonnet, the data suggests that the large increase in the headline rate was largely due to the base effect of a higher oil price. An updated ECB forecast scheduled to be released next week will give an indication of where the central bank thinks CPI is likely to end up at -with hawkish voices likely to be led by the Bundesbank given the divergence in inflationary pressures in the eurozone. “
