Small euro zone inflation rise matches ECB expectations
of coming dip
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[November 30, 2017]
By Philip Blenkinsop and Balazs Koranyi
BRUSSELS/FRANKFURT (Reuters) - Euro zone
inflation rose less then expected in November, indicating that price
growth remains weak and reinforcing European Central Bank expectations
for a dip around the turn of the year.
Inflation in the 19 countries sharing the euro rose to 1.5 percent in
November from 1.4 percent a month earlier, missing expectations for 1.6
percent, despite a surge in oil price that increased energy costs, data
from Eurostat showed on Thursday.
The ECB targets inflation at just below 2 percent but has missed this
objective for nearly five years as the euro zone is still just emerging
from its deepest economic crisis in generations with over 14 million
people still out of work.
To revive growth, the ECB has used its entire arsenal. It has cut rates
into negative territory, given banks nearly unlimited access to cheap
funding, and bought over 2 trillion euros worth of bonds to depress
The work has paid off. Seven million jobs have been created and growth
is now into its fifth year with weaker countries finally enjoying many
of the benefits.
But inflation is still expected to head below 1 percent in the coming
months as favorable figures from a year earlier get knocked from the
data series and price growth will only head back over 1.5 percent in
2019, ECB projections show.
Part of the reason is that labor market slack is likely bigger than
official figures show.
While unemployment dipped to 8.8 percent in October, the lowest since
the start of 2009, the actual slack may be twice as high, if data
included part time workers seeking more hours or those excluded for
various statistical reasons, the ECB said earlier.
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A woman buys bread on a supermarket in Lisbon August 30, 2011.
REUTERS/Jose Manuel Ribeiro
But in a comforting sign for the central bank, core inflation or price excluding
volatile food and energy, held steady at 1.1 percent, defying expectations for a
small drop, suggesting that underlying price pressures are at least holding
Still, with most of the big central banks around the globe struggling to prop up
inflation, some have argued that weak price pressures have become a global
phenomenon, increasingly outside the control of individual central banks.
"Over a two to three year period, which the ECB targets, inflation appears to be
less of a monetary but rather an increasingly global phenomenon beyond
individual central banks’ control," Commerzbank economist Joerg Kraemer argued.
"Global factors explain an increasing part of national inflation, whereas
domestic factors such as national unemployment rates are becoming less
relevant," Kraemer said.
This would suggest that more stimulus from the ECB will do little to accelerate
Indeed, a fresh Reuters poll indicated that markets see inflation easing to 1.4
percent next year from this year's 1.5 percent before a marginal rise to 1.6
percent, despite unprecedented central bank stimulus.
Klaas Knot, the Dutch central bank chief and a long-time critic of ECB policy,
even argued that the bank was already fulfilling its mandate, so it should phase
out its asset buys.
"The reflating economy will ultimately translate into increased pressure on
wages and prices," Knot said on Wednesday. "This may however take time. Central
banks can only affect the price level with long and uncertain lags."
(Reporting by Philip Blenkinsop and Balazs Koranyi Graphic by Jeremy Gaunt
Editing by Alastair Macdonald/Jeremy Gaunt)
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