Eurozone inflation reaches well above European Central Bank’s target

Economy - Mohit Shah - Mar 03,2017

Rating -

stars - based on 21 reviews

eurozone inflation reaches well above european central banks target

Eurozone inflation has hit its highest level in the last four years climbing higher than the rate targeted by the European Central Bank; ECB policies fall under the scanner.

According to Eurostat, the inflation in the 19-nation bloc reached 2% in February, rising higher from a rate of 1.8% from the previous month.

Moreover, the rate has been consistently high since January 2013 and is fairly higher than the ECB's target which was fixed below 2%.  

It is believed that the recent increase in eurozone inflation is majorly due to rising energy prices, which has raised the dilemma for ECB president, Mario Draghi.

In December, the European Central Bank announced it would extend its bond-buying programme until at least December this year. However, the quantitative easing (QE) scheme worth €80bn-a-month will be decreased to €60bn a month starting from April.

The bank has also cut its main interest rate to zero and launched the bond-buying programme with an aim to stabilize the eurozone by encouraging growth and cut short deflation.  

The ECB governing council is due to meet next Thursday to discuss the monetary policy. According to Howard Archer, chief UK and European economist at IHS Markit, the ECB might continue to stay committed to its “current monetary policy stance”.

Similar thoughts are shared by most of the members of the ECB governing council. They believe it is too early for the bank to ponder for an exit from its emergency policies.

German economists have highlighted that the rising inflation requires a “call of action” for the ECB president, Mr. Draghi.

According to Michael Heise, chief economist at Allianz, there exists a “big gap between interest rates and inflation” which is damaging to what the ECB is aiming to achieve. He further suggested that, the ECB should focus on increasing deposit rate from the 0.4 percent mark.