German inflation hits two-year high in October


German inflation picked up again in October to reach a two-year high, data showed Friday, suggesting the European Central Bank’s unprecedented stimulus measures to boost prices may be delivering.

Inflation rose by 0.8 percent this month compared to the year before, according to preliminary figures from Germany’s federal statistics office Destatis, the first time it has hit that level since October 2014.

The jump comes after inflation in Europe’s economic powerhouse already soared to a 16-month high in September, buoyed by rising energy prices.

While the latest figure will likely be welcomed by ECB chief Mario Draghi, it remains far off the central bank’s target of keeping inflation close to or just under 2.0 percent.

“For an economy that is currently operating at full employment and with a positive output gap, inflation rates at around 1 percent are still extremely moderate,” said analyst Carsten Brzeski at ING Diba bank.

Consumer prices in Germany increased by 0.2 percent on last month, Destatis said.

Within the consumer price basket, energy prices shrank by 1.4 percent on the year, less than the 3.6-percent year-on-year fall they saw in September.

Food prices were unchanged on the year.

Brzeski said climbing energy prices were the main driver behind the gradual increase in inflation.

Stubbornly low inflation across the euro area remains a major headache for the ECB, with eurozone consumer prices rising to just 0.4 percent in September.

The ECB earlier this month decided to hold its record-low interest rates steady in a bid to encourage lending and drive up inflation.

It also opted to leave intact the bank’s ultra-loose monetary policy, choosing to stay the course with a massive asset-buying programme to the tune of 80 billion euros ($87 billion) a month.

The bond-buying scheme is due to expire in March but most analysts believe more stimulus will be needed.

“With inflation pressures still very weak, we suspect that it will still extend its asset purchases by six months at the current pace in December,” said Capital Economics analyst Jennifer McKeown.

Using the Harmonised Index of Consumer Prices (HICP) preferred by the ECB, German inflation was up 0.7 percent compared with last October.

The preliminary October data is based on input from several German states.

Destatis said it would release the final results on November 11.

© 2016 AFP

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