Euro zone inflation surged to a four-year high last month, zooming past the European Central Bank's target and piling pressure on rate setters to open talks about when and how extraordinary stimulus measures will be scaled back. David Pollard reports.
Political campaigning German style. But with food and drink going up over four per cent in the last year, voters have less to celebrate. A spike in consumer prices a hot issue in September's election. As it could be even now for the ECB. (SOUNDBITE) (English) PANMURE GORDON CHIEF ECONOMIST, SIMON FRENCH, SAYING: "Thus far the German members of the ECB governing council have been prepared to support negative interest rates and the bond-buying programme because of the absence of inflation. Now you're starting to see that come through, will we start to see public divisions over whether the bond-buying programme will continue now through to December 2017?" But the data hides a paradox. Headline inflation at two per cent is just above the ECB target - Germany's 2.2 per cent rate even more so. Core inflation is still weak. (SOUNDBITE) (English) CITI EUROPEAN ECONOMIST, CHRISTIAN SCHULZ, SAYING: "It's mainly base effects in energy and perhaps transitory items such as food prices which are driving up inflation. Perhaps also some exchange rate moves between advanced economies and emerging economies. All of these will sooner or later unwind." That perhaps an even bigger problem for Mario Draghi as tries to boost a euro zone recovery. (SOUNDBITE) (English) PANMURE GORDON CHIEF ECONOMIST, SIMON FRENCH, SAYING: "Core inflation in the euro zone is stuck below one per cent ... There are no real signs that we're actually seeing wages and core inflation heading back to Mario Draghi's two per cent target." No decision to dial back QE likely then at next week's ECB rate-setting meeting. But a discussion of when it might become necessary seen on its agenda.