Eurozone Inflation Fastest In More Than 4 Years

On the other hand, the February inflation hike was first and foremost attributable to a 7.2-percent increase in energy costs.

The headline harmonised consumer price index for the euro area rose to 2.0% from 1.8% in January, according to Eurostat, with energy and food prices up 9.2% and 2.5% year-on-year respectively.

Still, the European Central Bank is likely to resist any call to step off the accelerator when it meets next week, arguing that the oil price fueled inflation surge is temporary, growth is fragile and the outlook is fraught with uncertainty given elections in France, Germany, the Netherlands and possibly Italy.

"That's not just a flash in the pan". European Central Bank policymakers have pointed to energy prices as the main driver of higher inflation across the eurozone in recent months.

The overall impact was limited as markets had priced in a slightly higher than expected increase in the annual rate following regional data released earlier.

Inflation is a red flag for many Germans whose families suffered from depreciation of money and mass unemployment in the 1920s.

The goods-producing sector expanded at its strongest rate in almost six years in February, suggesting factories will push up overall growth at the start of 2017.

With overall savings of 5 trillion euros ($5.28 trillion) and interest rates at zero, an inflation of 2 percent means German savers are basically losing 100 billion euros per year, Bavarian Finance Minister Markus Soeder said on Wednesday.

However, the surge in inflation is unlikely to prompt a big change in the ECB's policy soon.

Draghi has argued that the recent increase in inflation comes from global oil prices, an external factor that is not due to a fundamental improvement in the economy.

In December, the European Central Bank made a decision to continue bond purchases through the end of this year while reducing them from 80 billion euros ($84 billion) a month to 60 billion euros a month from April.

Still, ECB policymakers are likely to acknowledge an improved outlook, a precursor to any discussion about rolling back its 2.3 trillion euro asset buying program and raising deeply negative rates. If there is evidence that higher inflation is pushing up wage settlements, the central bank is likely to be much more hostile towards the bond-buying programme.

The German economy grew by 1.9 percent previous year, driven by strong private consumption, increased state spending and higher construction investment, and it is expected to carry its growth momentum through into 2017.

  • Zachary Reyes