Euro-area inflation accelerates due to unavoidable factors

Inflation in the Euro area has surged more than a forecast and a core measure jumped the most in nearly a year, covering a week of encouraging data for the European Central Bank.

Consumer prices have also risen since November last year. They have become 1.7 percent in April which is the strongest number. The narrower inflation gauge striping out volatile components such as energy and food has come to 1.2 percent, which means it has surged by 0.8 percent since March. Surprisingly, both readings have beaten all economists’ estimates.

This high pick-up in inflation is a key metric for ECB’s monetary policy. A few days back we had received a report in which the exponential growth in the euro-area economy was shown to be doubled unexpectedly in the first quarter amid a surge in Spain, resilience in France and of course a rebound in Italy. Interestingly, policymakers were showing some confidence in the stabilization of the economy. But the “high picking up of inflation” report that came just after this report has changed the altogether scenario. Now, Bund yields have also turned positive at the start of the week and have been rising each day as the economic data is improving every now and then.

Let us see, what economists are saying about this scenario. “The recovery in inflation will reassure policymakers at the European Central Bank that the economic slowdown might pass before it causes inflation to ease,” said Maeva Cousin, a well-known economist from Europe.

The really-high surge in consumer price may have been driven by some of the factors that are likely to unwind in the month of May. Data from economists in Germany has shown the inflation rate was accelerated because of the surging cost of Easter package holidays. The clearer picture can be seen in the forecast period.