LONDON (AP) — Food price increases helped push inflation across the 19-country eurozone to its highest rate in two and a half years, official figures showed Wednesday. However, the rise in the annual rate to 0.6 percent is unlikely to alter expectations that the European Central Bank will extend its stimulus program next week.
The rise in the November rate as reported by Eurostat, the European Union’s statistics agency, was somewhat of a surprise in markets following lower than anticipated German figures. Most economists had penciled in an unchanged rate of 0.5 percent.
Inflation in the eurozone is now at its highest since April 2014, when inflation stood at 0.7 percent.
Eurostat said food, alcohol and tobacco had the biggest impact in pushing up prices in November. The main driver this year in the modest pick-up in inflation from April’s minus 0.2 percent has been the fading impact of 2015’s sharp fall in oil prices. In November, energy prices were only 1.1 percent lower than the year before, according to Eurostat. That stands in sharp contrast to the minus 7.3 percent recorded in November last year.
Like all major economies, the eurozone has seen subdued inflation over the past couple of years largely because of the sharp fall in oil prices. That’s one of the reasons there is so much interest in whether the Organization of the Petroleum Exporting Countries, or OPEC, decides to cut production later Wednesday at a meeting in Vienna, Austria. There are hopes for a deal, and that’s pushed oil prices up 5 percent in morning trading.
Though inflation is pushing higher, it is still well below the European Central Bank’s target of just under 2 percent, a level it considers right for a healthy economy. Also, the core inflation rate, which strips out the volatile items of food, energy, alcohol and tobacco, remains historically low at an annual rate of 0.8 percent.
As a result, the ECB is expected next week to extend its bond-buying stimulus program further in hopes of getting inflation up toward target.
The central bank is to discuss whether to extend its 1.77 trillion euros ($1.9 trillion) in bond purchases, a stimulus program that pumps 80 billion euros per month into the eurozone economy. The program is intended to keep interest rates in the markets low, which should boost lending and economic activity, thereby assisting a rise in prices.
The earliest end date for the program is March, 2017. Analysts think the bank may extend that by three or six months. Some think that ECB President Mario Draghi will also explain how the program will eventually be eased out — so-called tapering — as opposed to ending abruptly.
Bill Adams, senior international economist at The PNC Financial Services Group, thinks the ECB will “signal at its December 8 meeting that a taper of its asset purchase program is likely in 2017, possibly beginning as early as April.”
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