Euro-area inflation marked the fastest pace in more than a year. That’sgood news for European Central Bank officials debating the future policy path. This news come as turmoil in Italy reignites memories of the debt crisis.
The 1.9 percent rate, effectively in line with the ECB’s goal, was up from just 1.2 percent in April. It was above the 1.6 percent reading forecast by economists. The core measure rose to 1.1 percent, also better than anticipated.
The results in Germany and Spain were also stronger than anticipated. The rate in Spain reached a 15-month high. The euro stayed higher after the euro-zone data, and was up 0.1 percent to $1.1681 as of 12:24 p.m. Frankfurt time.
Higher oil prices had a role in the inflation pickup. It is welcome news for the ECB as they hold their next policy meeting in just two weeks time.
David Powell and Jamie Murray of Bloomberg Economics wrote: “While the largest driver of the move was energy prices, underlying price pressures may be firming as well. That should provide President Mario Draghi with the confidence to hint at asset purchases coming to an end this year at the June press conference, even though GDP growth has slowed.”
Officials led by President Mario Draghi haven’t ruled out declaring a gradual reduction in asset purchases at that gathering. Executive Board member Sabine Lautenschlaeger said this week that June “might be the month to decide once and for all” to end the program.
Confidence Countered By Italy’s Political Crisis
This growing confidence may be countered by Italy’s festering political crisis. Other downside risks include an international trade dispute or a standoff between the U.S. and North Korea.
The Organization for Economic Cooperation and Development titled their latest economic assessment as: “Risks Loom Large.”
But no one is arguing that declines in joblessness, particularly in crisis-hit countries such as Spain, have helped fuel wages and are expected to continue to increase consumption. Euro-area unemployment fell to 8.5 percent in April. That compares with 9.2 percent a year ago.
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