President of the European Central Bank Mario Draghi is on his way to a news conference in Frankfurt, Germany, Thursday, April 27, 2017. (AP Photo/Michael Probst)

Eurozone inflation rises to target as economy improves

April 28, 2017 - 5:54 am

LONDON (AP) — Inflation in the 19-country eurozone rose to the European Central Bank's goal in April as an improvement in the economy helped drive up prices, stoking speculation that the bank could start winding down its stimulus measures sooner than previously thought.

Statistics agency Eurostat said Friday that its headline rate rose to 1.9 percent over the year to April from 1.5 percent the previous month. The increase was a tad more than expected in financial markets and means that inflation is back at the ECB's target of just below 2 percent.

The main cause of the rise was a big increase in energy costs, which were 7.5 percent higher. A year ago, they had fallen 8.7 percent.

The key development in Friday's release, however, was a rise in the core inflation rate, which strips out the volatile items of food, energy, alcohol and tobacco, to 1.2 percent from 0 .7 percent. That's important as it shows that inflation pressures may be building through such things as higher wages as the eurozone economy gains momentum. A raft of economic data recently has shown the eurozone getting stronger despite concerns associated with France's presidential election and the start of Britain's exit from the European Union.

Despite that rosier backdrop, ECB President Mario Draghi cautioned investors on Thursday not to anticipate any tapering off of the stimulus program yet. Among other things, he is not confident that inflation could stay at the ECB's target.

The reaction in markets suggests investors believe that the April inflation figures may alter the thinking at the ECB. The euro was up 0.6 percent at $1.0935.

Overall, analysts think the ECB will want to see several months of evidence that the economy is strong and inflation higher before committing to a plan to taper the stimulus.

The April figures could have been distorted by the timing of Catholic Easter, which can push up prices, especially for food. Last year, it fell in March, this time in April.

The ECB has slashed interest rates, including its main one to zero, and embarked on a big bond-buying stimulus program to keep a lid on market interest rates. Its hope is to get inflation back towards its target and then to start easing off the bond-buying program.

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