Eurozone Inflation Turns Positive For First Time In 6 Months

Eurozone consumer prices increased for the first time in six months in January largely due to temporary factors, flash data from Eurostat showed on Thursday.

The harmonized index of consumer prices climbed 0.9 percent year-on-year in January, reversing a 0.3 percent fall in December. Economists had forecast an annual growth of 0.5 percent.

Prices increased for the first time since July, when the index was up 0.4 percent.

Excluding energy, food, alcohol and tobacco, core inflation accelerated more-than-expected to 1.4 percent from 0.2 percent. Economists had forecast a rate of 0.5 percent.

Temporary factors are pushing up inflation at the moment, and there is more to come, Bert Colijn, an ING economist, said. And that is exactly why the European Central Bank should not be alarmed.

Headline inflation is likely to rise to around 2 percent by the end of the year, but will drop back next year and, in the medium term, is likely to remain well below the ECB’s target, Andrew Kenningham, an economist at Capital Economics, noted.

Data showed that the annual increase in food, alcohol and tobacco prices rose to 1.5 percent from 1.3 percent. At the same time, energy prices dropped at a slower pace of 4.1 percent after easing 6.9 percent.

Non-energy industrial goods prices climbed 1.4 percent, in contrast to December’s 0.5 percent fall. Services price cost growth increased to 1.4 percent from 0.7 percent.

EU harmonized prices turned positive in all four-major euro area economies in January. Germany’s prices grew 1.6 percent, reversing a 0.7 percent fall in December. France’s inflation came in at 0.8 percent versus zero a month ago.

Spain’s prices climbed 0.6 percent annually, offsetting a 0.6 percent fall a month ago. At the same time, Italy’s HICP gained 0.5 percent, reversing a 0.3 percent drop in December.

On a monthly basis, the euro area HICP gained 0.2 percent in January, while core prices were down 0.5 percent in January.

Another report from Eurostat showed that producer prices continued to decline in December. Producer prices fell 1.1 percent annually, following a 1.9 percent drop in November.

Excluding energy, producer prices edged up 0.1 percent after staying flat in November.

Month-on-month, producer price inflation doubled to 0.8 percent from 0.4 percent a month ago.

In 2020 as a whole, producer prices dropped 2.6 percent in the euro area.

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