Eurozone CPI 0.4% Higher

Eurostat revealed today that they had recorded an increase of 0.4% in the Eurozone Consumer Price Index for the month of September, after a previous increase of 0.2% in August. The reading was in line with analysts’ forecasts, according to Thomson Reuters. The CPI was also 0.4% higher in terms of an annualized reading, the same as it was in August. The 19 bloc EU region recorded a very positive annual growth rate for inflation, as Belgium led the list of gainers posting a value of 1.8%, Bulgaria is however struggling with deflation at a rate of 1.1% YoY.

Inflation in Germany hit a 16-month higher of 0.5 per cent in September, while both Spain and Italy exited deflation. The European Central Bank (ECB) targets an inflation rate of "below, but close to" 2% - a level which it has not hit since the beginning of 2013. In the face of weak demand and slow economic growth, Draghi, president of the ECB, unleashed a massive stimulus package which has left interest rates at their lowest level in the history of monetary policy - minus 0.4 per cent - and resulted in the ECB buying €80bn a month of government and corporate bonds.

With the exception of volatile energy and food prices, the core CPI edged higher by 0.5%, after the reading of 0.3% recorded in the month of August. The CPI recorded an annualized growth of 0.8% for core inflation in line with forecasts and the previous month. Eurostat also stated that the largest contributor to the uptick the index has enjoyed came mostly from cafes, restaurants, rents and tobacco, as energy and transport weighed heavily on inflation.

The higher prices in restaurants and cafes as well as rents and cigarette prices pushed up euro zone inflation in September, data showed on Monday, offsetting the downward pull on the index from cheap fuel and gas prices. Food, alcohol and tobacco prices rose 0.7% year-on-year in September, with unprocessed food itself 1.1% more expensive than 12 months earlier. Energy prices, despite rising 1.0% from August, were still 3.0% lower than a year earlier. Their annual drop is much milder than in August, when energy prices fell 5.6%, reflecting mounting oil prices.

The latest inflation release will dampen the worries surrounding the EU economy as the ECB’s next policy meeting draws closer. The ECB meets on Thursday for its next monetary policy decision. It is not expected to act, although markets will be looking carefully for any indication as to whether the ECB is planning to extend its quantitative easing programme which is currently due to end in March 2017. Reports the central bank was considering tapering the bond-buying caused the euro to leap earlier this month.

Howard Archer, chief economist at IHS Markit said: "Stubbornly weak Eurozone core inflation and likely ongoing lackluster economic activity suggest to us that the ECB will have some more work to do."

Markets showed limited response to the data. The EUR/USD experienced a small boost, and is currently trading higher to $1.0998, +0.27%. The German DAX is trading lower by 0.44% to 10,533.44, while the French CAC 40 is lower by 034% to 4,456.52.