German Inflation Breaks Through 2% for First Time Since 2012

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Driven higher by another rise in energy prices, the eurozone's inflation rate soared above 2% in February, jumping above the ECB's target for the first time in four years.

In the most populous state, North Rhine-Westphalia, annual inflation rose to 2.3 percent from 1.9 percent in January.

Food, the second biggest riser, edged up 2.5 per cent in February year-on-year, up from 1.7 per cent in January.

"The continued impact of transitory factors on the headline rate, coupled with the continued limited pass through to core inflation, should see the ECB leave both policies unchanged at its meeting next week and also resist calls to adjust its forward guidance for the time being", said Cathal Kennedy, European economist at RBC Europe.

Unemployment in the 19-country single currency area in January meanwhile was 9.6 percent, unchanged from December but holding at its lowest rate since May 2009, the Eurostat statistics service said.

The ECB's inflation target "below, but close to 2%" has been crossed, according to the preliminary February estimate released yesterday.

With overall savings of five trillion euros and interest rates at zero, an inflation of 2.0 percent means German savers are basically losing 100 billion euros per year, Bavaria's Finance Minister Markus Soeder said on Wednesday.

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In December, the bank made a decision to continue purchases through the end of this year while reducing them from 80 billion euros a month to 60 billion euros a month from April.

"Calls from Germany on the European Central Bank to change its monetary policy are mistaken and premature", the head of the DIW economic research institute Marcel Fratzscher said.

Although inflation is set to edge a little higher in the near-term due to base effects relating to energy prices, Archer expects inflation ending 2017 around 1.6 percent.

But the main event in the euro zone on Thursday was flash inflation for February due at 1000 GMT.

In December, ECB President Mario Draghi said he would extend the current QE programme past the original cut-off date in March until at least December 2017, despite tapering it slightly from €80bn a month to €60bn.

The ECB is now coming under increasing pressure - particularly from the German government - to scale back on that stimulus. Markets expected prices to rise 1.9 %.

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