German Inflation Picks Up to 2-Year High as ECB Debates Stimulus

  • Consumer prices increased annual 0.7 percent in October
  • Euro-area inflation report due to be published on Monday

The European Headwinds Facing Draghi and the Euro

German inflation accelerated at the fastest pace in two years in October, adding to signs that the European Central Bank’s efforts to revive price growth are finally paying off.

Consumer prices rose 0.7 percent from a year ago, compared with 0.5 percent the previous month, the Federal Statistics Office in Wiesbaden said on Friday. That was in line with the median forecast in a Bloomberg survey of economists. Prices rose 0.2 percent from September.

Higher German inflation is a welcome sign for ECB policy makers who are debating whether and how to extend asset purchases beyond their scheduled end in March. While a drag from energy prices is slowly receding, services inflation hasn’t experienced significant upward pressure in recent months.

A national measure of inflation rose to 0.8 percent from 0.7 percent in September, according to the report.

Data on business sentiment, export expectations and economic activity suggest that Germany’s economy is poised for faster growth toward the end of the year, after uncertainty related to the U.K.’s vote to leave the European Union sparked a temporary lull in the third quarter. The Bundesbank has said that underlying economic momentum remains strong.

The inflation rate in the euro area will rise to 0.5 percent in October from 0.4 percent the previous month, according to the median estimate in a Bloomberg survey of economists. That report will be published on Monday at 11 a.m. Luxembourg time.

ECB Executive Board Yves Mersch member said on Thursday that price growth should reach the central bank’s goal of just under 2 percent in 2019. His Governing Council colleague Ardo Hansson cautioned a day earlier that data still doesn’t show a “very clear trend for improvement” of core inflation, which strips away volatile elements like food and energy.

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