Eurozone inflation at four-year high of 2% increases pressure on European Central Bank

Eurozone inflation at four-year high of 2% increases pressure on European Central Bank”

Eurostat, the European Union's statistics agency, said Thursday that consumer prices across the eurozone were 2 percent higher in the year through February.

On a non-harmonized basis, annual inflation also picked up to 2.2 percent after 1.9 percent in January.

Preliminary data from several German states showed that consumer price inflation accelerated across the country, mainly driven by higher food, energy and transportation costs.

As a result, the news is likely to bolster pressure from some European nations for the bank to end its extraordinary monetary policy support for the bloc's economy.

Strategists said lower core inflation, a measure that excludes the effect of sharply rebounding energy prices over the past year, could temper the market reaction because it would signal that consumer price growth may not be durable over time.

In December, the ECB said it would extend its bond-buying programme until at least December 2017, and caution that it is unlikely that the central bank will further limit its QE program on the news, at least in the short term. According to a survey of 3,000 companies by data firm IHS Markit, eurozone manufacturers raised their prices at the fastest rate in over 5 1/2 years during February as their costs jumped.

Europe's benchmark German 10-year yield hit a 10-day high, buttressed by expectations that the U.S. Federal Reserve is set to raise interest rates later this month. Stimulus critics, however, have grown louder as the eurozone economy recovers and inflation nears the bank's goal of just under 2 percent.

The bank has cut its main interest rate to zero and embarked on the bond-buying programme to try to stimulate growth in the eurozone and avoid deflation, or falling prices.

In December, the European Central Bank chose to continue bond purchases through the end of this year while reducing them from 80 billion euros ($84 billion) a month to 60 billion euros a month from April.

Policymakers could point out that the oil price fuelled inflation surge is temporary, growth is fragile and the outlook is fraught with uncertainty given elections in France, Germany, the Netherlands and possibly Italy.

Unemployment has also fallen steadily.

Eurostat estimates that the number of unemployed people in the eurozone fell by 56,000 to 15.6 million.

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