German inflation picked up further in January, hitting the highest level in three-and-a-half years to touch the European Central Bank’s price stability target of just under 2 percent, preliminary data showed on Monday.
The consumer price figures, published by the Federal Statistics Office, are likely to fuel the political debate in Germany, Europe’s biggest economy, about ending the ECB’s loose monetary policy.
However, ECB rate setter Ewald Nowotny made clear on Monday that the central bank would probably first review its monetary policy stance in June and stop short of any decision on winding down its huge stimulus program.
German consumer prices, harmonized to compare with other European countries (HICP), rose by 1.9 percent after an increase of 1.7 percent in December, the Federal Statistics Office said.
The data came in slightly weaker than a Reuters consensus forecast for a rise of 2.0 percent. Still, it was the highest annual inflation rate since July 2013.
“The time of low inflation rates in Germany is over,” Sal. Oppenheim economist Ulrike Kastens said, adding that the higher oil price would catapult the German inflation rate above the 2-percent-threshold in coming months.
For 2017 as a whole, German inflation will reach 1.8 percent, Kastens predicted.
A breakdown of the non-harmonized inflation data showed that rising energy prices and higher food costs were the main drivers behind the overall increase in January.
“Following today’s inflation data, German ECB-bashing is very likely to gain further momentum,” ING chief economist Carsten Brzeski said.
“Obviously, increasing inflation – no matter what the drivers are – combined with low interest rates leads to even more negative real interest rates and hurts savers,” he added.
The central bank of the 19-member single currency bloc has unleashed unprecedented stimulus in recent years, cutting interest rates aggressively and pumping more than a trillion euros into the economy through asset purchases.