Euro zone inflation rose by more than expected in August to its highest rate in four months, flash estimates showed on Thursday, raising expectations that the European Central Bank will start winding down its extra-loose monetary policy. David Pollard reports.
They may call the tune for Europe's largest economy... But in June they were slightly off key. Germany's powerful consumers holding back on some purchases - pushing overall sales down 1.2 per cent on the month. The fall was much bigger than expected - if unlikely to unnerve anyone quite yet. (SOUNDBITE) (English) INVESTMENT DIRECTOR AT FIDELITY INTERNATIONAL TOM STEVENSON SAYING: "The underlying strength of the euro zone economy is pretty good at the moment. We're seeing growth and we're seeing moderate inflation which is which is a good backdrop." And inflation should get an extra hit from Germany's strong labour market. Unemployment in July was just 5.7 per cent - raising expectations of bigger wage rises. For the euro zone as a whole, the latest flash data also surprised. Inflation at 1.5 per cent in August - its highest in four months. Though a single european currency also at multi-month highs .... could confuse the outlook for Mario Draghi's policymakers when they meet next week. (SOUNDBITE) (English) INVESTMENT DIRECTOR AT FIDELITY INTERNATIONAL TOM STEVENSON SAYING: "With the euro standing at a dollar 20, that will push down on inflation and it really takes away the pressure for the ECB to start tightening policy. So I think the prospect of interest rates rising over the next couple of years is pretty slim. But I think what we will see is a gradual withdrawal of the the stimulus the quantitative easing the buying of bonds which the ECB has been engaged in." If gradual it may be .... Core inflation - a measure closely watched by the ECB that strips out food and energy prices - was still relatively weak in August at just 1.3 per cent - and still far below the central bank's target.