Euro-Area Inflation Accelerates After String of Upbeat Data

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Inflation in the euro area accelerated more than forecast and a core measure jumped the most in nearly a year, capping a week of encouraging data for the European Central Bank.

Consumer prices rose 1.7 percent in April from a year earlier -- the strongest number since November. The narrower inflation gauge that strips out volatile components such as energy and food came in at 1.2 percent, a six-month high, surging from 0.8 percent in March. Both readings beat economist estimates.

The pickup in inflation -- a key metric for the ECB’s monetary policy -- comes just days after a report showing the pace of growth in euro-area economy unexpectedly doubled in the first quarter amid a surge in Spain, resilience in France and a rebound in Italy. That should make additional stimulus less urgent, with policy makers already expressing some confidence that the economy is stabilizing. Bund yields turned positive at the start of the week and have kept rising each day as the economic data improved.

Bundesbank President Jens Weidmann on Thursday touted Germany’s excellent labor-market situation and rising incomes as a source of strength for private consumption that should tide the economy over its soft patch. He also urged the ECB to press ahead with its exit from unconventional monetary policy if inflation allows.

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“The recovery in inflation will reassure policy makers at the European Central Bank that the economic slowdown might pass before it causes inflation to ease.”
--Maeva Cousin, economist
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The pickup in price growth may have been partly driven by temporary factors that are likely to unwind in May. Germany data earlier this week showed inflation accelerated at the fastest pace in five months in April on the back of surging cost of package holidays -- a side effect of Easter holiday that came later than last year.

The reading for core inflation now matches a ceiling it hasn’t breached in two years, underlining the struggle for the ECB to achieve sustainable increases in consumer prices.

--With assistance from Kristian Siedenburg, Catarina Saraiva and Harumi Ichikura.

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss, Craig Stirling

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