News_Economy_04012017

Inflation welcomed back

Berlin (dpa) - German consumer prices surged to a three-year high in December, easing pressure on the European Central Bank amid its ongoing battle against deflation it fears could hobble the eurozone economy.

Annual consumer prices in Europe's biggest economy jumped from 0.8 per cent in November to 1.7 per cent last month as energy costs rose, the Federal Statistics Office (Destatis) said on Tuesday.

"Inflation is celebrating a comeback", said VP Bank analyst Thomas Gitzel. Analysts had forecast a rise of 1.4 per cent in December.

The German data should help to push consumer prices in the 19-member eurozone back up towards the ECB's target of an annual inflation rate of just below 2 per cent.

Consumer prices in France also increased in December, rising 0.8 per cent to record their biggest gain since May 2014, the nation's statistics office said.

The December rise in the German cost of living represented the fastest gain in inflation since July 2013. But, while this tamps down deflation worries, it also raises the risk that higher consumer prices could cut into household spending power and dampen domestic demand in the nation.

"In principle, the inflation rate in Germany and the eurozone are on an upward trend," said Commerzbank economist Marco Wagner. "The key drivers in the coming months should be energy prices."

After slumping by 2.7 per cent in November, energy costs in Germany rose by 2.5 per cent in December. Food prices jumped from 1.2 per cent in November to 2.5 per cent last month, Destatis said.