Consumer price inflation in Germany, Europe's biggest economy, picked up modestly in January, but not enough to stay the European Central Bank's hand from taking further stimulus action, analysts said Thursday. Germany's national inflation yardstick, the consumer price index, rose by 0.5 percent this month, after edging up 0.3 percent in December, the federal statistics office Destatis said.
And using the Harmonised Index of Consumer Prices (HICP) - the barometer used by the European Central Bank - the inflation rate stood at 0.4 percent, also a tick higher than the 0.2 percent recorded in December. Despite the modest pick-up, the German inflation rate is still a long way below the 2.0 percent that the ECB regards as conducive to healthy economic growth.
And analysts said that the ECB will announce further policy measures soon to kickstart prices and push area-wide inflation back up nearer that level. Already last year, the ECB rolled out a controversial programme of sovereign bond purchases, known as QE or quantitative easing. It initially appeared to work, but the economic slowdown in China and depressed oil prices have pushed inflation expectations back down again. At the ECB's first policy meeting this year, president Mario Draghi suggested additional monetary easing could be on the cards as early as March if inflation expectations do not pick up quickly.
Analysts said the latest inflation data would not alter that scenario. "While the headline inflation is doing flips and twists due to the volatile energy prices, the core inflation rate has stuck at around 1.3 percent since 2012," said Commerzbank economist Marco Wagner. "Consequently, the core inflation in the eurozone should also struggle to advance towards the ECB's two-percent target. We expect that central bankers could loosen monetary policy further in March," he said. Capital Economics economist Jennifer McKeown agreed. "While the (inflation) rate is set to rise further in the months ahead, underlying inflation pressures remain weak enough to warrant further ECB action," she said.
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