Official data showed inflation advancing in major eurozone economies Germany, France, and Spain on Tuesday (3 January), but analysts warned that a return to healthy price rises remains far off.
Inflation in Germany, Europe’s largest economy, hit its highest level in more than three years in December at 1.7% year-on-year, the federal statistics authority Destatis said.
It was the fastest pace of inflation since July 2013 and beat the 1.5% predicted by analysts surveyed by Factset.
As measured by the ECB’s preferred yardstick, the Harmonised Index of Consumer Prices, German inflation was also 1.7% in December.
The German data comes as releases showed HICP inflation in eurozone partners Spain hitting 1.4% and France 0.8% in December — up from 0.5% and 0.7% the previous month.
Consumer prices in three of Europe’s largest economies appeared to advance towards the European Central Bank’s inflation target of just below 2.0% after months of stagnation.
The central bank has set interest rates at record lows and pumped money into the economy by buying bonds and offering cheap loans to banks as it seeks to support growth and inflation in the 19-nation single currency area.
But analysts warned that Frankfurt policymakers should stop short of opening any leftover New Year’s champagne.
Rising energy prices pushed that component of the German consumer prices basket up 2.5% year-on-year in December, its first rise in more than three years.
France’s Insee statistical agency also pointed to oil prices as a powerful driver of inflation.
Energy has grown more expensive after countries belonging to OPEC agreed to cut oil output in December in a bid to drive up prices.
“Still far away”
A long-lasting supply glut saw the commodity plumb lows of less than $30 per barrel in early 2016, returning to $50-plus territory since the OPEC agreement.
Pricier oil “could easily push German headline inflation through the ECB’s 2% ceiling,” analyst Jennifer McKeown of Capital Economics said.
But it will be longer before core inflation – excluding energy and food prices – in Europe’s largest economy reaches such levels.
Meanwhile, “price pressures elsewhere in the eurozone are much weaker”, she noted.
“We’ve avoided the threat of a deflationary spiral, thanks largely to the efforts of the European Central Bank,” said Eric Heyer of France’s OFCE think-tank, but “we are still far away” from the 2.0% target.”
“The problem is that we’re still in a context of low growth” in France, said Helene Baudchon of BNP Paribas.
While the German government forecast its economy to grow at around 1.7% in 2016 and the Bank of Spain predicts 3.2% growth, France’s Insee cut its forecast to 1.2% in December.