German inflation hits 4-1/2 year high in February

Rising fuel prices boosted Eurozone inflation again last month to reach two per cent for the first time in four years.

The rate is the highest since January 2013 and is slightly above the ECB's target of just below 2%.

Germany, the biggest of the eurozone economies, has already announced that its inflation rate rose to 2.2 percent from 1.9 percent.

Energy price increases had the biggest upside impact, Eurostat tables indicate, rising and estimated 9.2% from past year.

Peter Vanden Houte, Chief Economist at ING, doesn't expect this figure will alter ECB's loose monetary policy in 2017 "as underlying inflation remains very subdued at 0.9%".

Producer prices - the amount that manufacturers charge - jumped to an annual 3.5 percent rate, from January's 1.6 percent, indicating further increases ahead.

Capital Economics analyst Jennifer McKeown said the state readings supported the forecast, but German core inflation, which strips out volatile energy and food costs, was likely to remain weak in the coming months.

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ECB President Mario Draghi has indicated that the central bank will tolerate a temporary rise in inflation above the target.

In January, Mr Draghi pointed to a new set of criteria arguing that the return to the ECB's inflation goal must be durable, self-sustained and representative of the euro area as whole. The firm suspects it will fall back later in the year as year-on-year energy prices moderate.

With overall savings of five trillion euros and interest rates at zero, an inflation of 2.0 percent means German savers are basically losing 100 billion euros per year, Bavaria's Finance Minister Markus Soeder said on Wednesday.

In December, the European Central Bank announced an extension of its bond-buying program to the end of this year from a tentatively scheduled conclusion in March, although it cut the monthly value of purchases.

Most analysts think the bank will not back off its stimulus but may signal at some point this year its intentions to start tapering it off gradually in 2018.

As recently as May of last year, consumer prices were below their levels of a year earlier, and the 1% level was breached for the first time in more than three years as recently as December.

Eurostat also estimates that the number of unemployed people in the eurozone fell by 56,000 to 15.6m in February in a statement at the end of today's inflation release.

  • Ronnie Bowen