Consumer prices in the 17-nation euro area rose 3 percent in September from a year earlier, after a 2.5 percent increase in August, the largest increase since October 2008, according to an initial reading by the European Union’s statistical office, Eurostat. Economists polled by Bloomberg and Reuters had expected a reading closer to 2.5 percent.
Eurostat did not provide a breakdown of the data, but the euro’s recent decline against the dollar and other currencies has made imports, many of which, like oil, are priced in dollars, more expensive in the past few months.
Coming on the heels of reports this past week showing declining consumer confidence in Europe and evidence that much of the regional economy is slowing, the data complicate the monetary policy challenge facing the E.C.B., which has a primary responsibility of maintaining price stability.
In Germany, the largest economy in Europe and its engine of growth for several years, the Federal Statistical Office in Wiesbaden said Friday that retail sales declined 2.9 percent from July, in real, seasonally adjusted terms.
Some analysts had expected the E.C.B. to move as soon as Oct. 6 to ease monetary policy. The combination of stagnant growth and rising prices can create a condition known as stagflation, something fragile banks and anxious consumers are eager to avoid.
And while consumer price rises undermine incomes, many economists say that deflation, or a general decline in price levels, is actually more of a threat at present, considering the deleveraging under way among financial institutions and households.
Ben May, an economist at Capital Economics in London, said investors should expect another move by the E.C.B. by the end of 2011, noting that so-called core inflation, which subtracts energy and food prices because of their volatility, appeared to be well below the central bank’s 2 percent target.
“What’s more, any rise is likely to prove temporary, given the recent signs that the recovery is coming to an end,” Mr. May said.
Clemente De Lucia, an economist at BNP Paribas, noted that a methodological change had increased the volatility of consumer price data, meaning that the data should be taken with a grain of salt. In Italy, for example, consumer prices jumped 3.5 percent in September after a 2.3 percent August rise.
He said euro area inflation would probably come in around 2.8 percent this year and fall below 2 percent in 2012.
The U.S. Federal Reserve, the Bank of England, the Swiss National Bank and the Bank of Japan all have set their main overnight target rates at close to zero. The E.C.B.’s main rate is 1.5 percent.
The report weighed on stock markets, with the Euro Stoxx 50 index, a barometer of euro zone blue chip shares, falling 1.5 percent Friday, while the FTSE 100 in London slid 1.3 percent.
Article source: http://www.nytimes.com/2011/10/01/business/global/inflation-jump-in-europe-complicates-life-for-ecb.html?partner=rss&emc=rss