Euro zone inflation surges to 10-year-high, in headache for ECB

Euro zone inflation surged to a 10-year-high in August with further rises likely, challenging the European Central Bank’s benign view on price growth and its commitment to look past what it deems a temporary increase.

Consumer inflation in the 19 countries sharing the single currency accelerated to 3% this month from 2.2% in July, far above expectations for 2.7% and moving well clear of the ECB’s 2% target.

The increase was fuelled by energy costs, but food prices also surged, while there were unusually large increases in the prices of industrial goods too, according to Eurostat, the EU’s statistics agency.

Markets mostly shrugged off the data, with stocks rising and yields increasing just a basis point or two, suggesting the narrative of temporary inflation and ultra-easy central bank policy for years to come remains the central one.

Still, the numbers are likely to make for uncomfortable reading at the ECB.

The central bank has repeatedly raised its inflation projection this year only for the actual numbers to beat its forecasts, and price growth now seems likely to peak only in November.

via Reuters