- Jennifer McKeown, analyst at Capital Economics
German inflation rose on an annual basis in January, but remained well below the targeted level. Consumer prices in the Euro zone's biggest economy climbed 0.5% year-over-year in the beginning of the year, compared with the 0.3% growth recorded in December, the Federal Statistics Office reported. A separate measure, the Harmonized Index of Consumer Prices, showed inflation picking up 0.4% on year, up from a 0.2% gain in December. Germany's strong labour market could push wage growth higher and with it also core inflation. However, price pressures are likely to remain weak, given signs that the German economy might be slowing. A precipitous plunge in oil prices raised questions about the European Central Bank's ability to boost inflation up toward its 2% target for the whole Euro zone. After the central bank eased policy further in December, ECB President Mario Draghi reassured that the central bank still has plenty of options left to fight low inflation, suggesting it could act as early as March.
Meanwhile, a separate report showed the mood in the 19-nation currency bloc declined more than expected in January. According to the European Commission, economic sentiment across the region slid to 105.0 in the current month, compared with a downwardly revised 106.7 in December.
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