08/01/2018 - Eurozone Inflation Still Below ECB Target - 08/01/2018
Eurozone inflation drifted further astray from the ECB’s December target on Friday, highlighting the challenge facing policy makers to as it looks to tackle rising prices whilst winding down its quantitative easing programme this year.
Average consumer prices rose 1.4% year on year last month, down from 1.5% in November and in line with consensus forecasts. Core inflation also struggled to rise, remaining constant at 0.9%.
Although prices in the services sector have remained fairly constant, energy, food, alcohol and tobacco prices have been volatile. However inflation in industrial goods picked up slightly but this did little to support the figure.
The ECB has reiterated that it expects headline inflation to be weak in the coming months mainly due to the impact of earlier rises in energy prices falling out of year on year calculations.
However the euro received some support from producer price inflation which was twice as strong as expected for the month of November. The figure posted a reading of 0.6%, bringing the year on year rate to 2.8%. PPI tracks changes in the prices of goods bought and sold by manufacturers and can be used to gauge price increases over the medium to long term.
The dollar rebounded on Friday, despite data showing that the U.S. economy added fewer jobs than expected last month. A report published by the Bureau of Labour Statistics on Friday showed that the change in the number of employed people during the previous month fell to 148,000 for the month of December. Analysts had originally expected economy to add 185,000 jobs from a previous of 252,000.
Other data released also included the unemployment rate which remained unchanged at 4.1% in line with expectations and average hourly earnings which rose 0.3% last month as forecast.
A separate report also showed that service sector activity in the US fell by more than expected last month. The Institute of Supply Management (ISM) said its non-manufacturing purchasing manager’s index (PMI) decreased to 55.9 in December down from 57.4 in November.