World Economy

EU Inflation Highest in 3 Years

Eurozone business activity as a whole accelerated in December to its highest level of growth since May 2011
French people shopping in Paris during Christmas.French people shopping in Paris during Christmas.

Surging oil prices caused inflation in the 19-country eurozone to spike in December to its highest rate in more than three years, official figures showed Wednesday.

Eurostat, the European Union's statistics agency, said the annual inflation rate rose to 1.1% from November's 0.6%. December's rate was the highest since Sept. 2013, when inflation also stood at 1.1%, AP reported.

The figures are likely to cheer policymakers at the European Central Bank who through various stimulus efforts in recent years have sought to get inflation toward their target of just below 2%.

The main contributor to the increase was a sharp rise in energy prices. Eurostat said they were up 2.5% in the year to December compared with a 1.1% drop in November. In December, oil prices rose sharply after major crude-producing nations agreed to cut output levels and are now trading well above $50 a barrel.

Still, there are likely to be lingering concerns at the ECB that, when excluding energy costs, inflation remains muted. The core rate, which strips out the volatile items of energy, food and tobacco, rose to only 0.9% from the previous month's 0.8%.

A separate survey Wednesday provided some evidence that the spike in inflation will likely continue over the coming months.

Prices Rise

Financial information company IHS Markit found in a closely monitored survey of economic activity across the eurozone that price increases for companies input costs surged to a five-and-a-half year high in December. This, it said, reflected a combination of higher fuel and oil prices alongside increased import costs due to the weaker euro exchange rate.

The firm also found that output charges—what companies price their goods at—rose for the second month running and at the steepest pace since July 2011.

Eurozone business activity as a whole accelerated in December to its highest level of growth since May 2011, the same survey found.

IHS Markit's composite purchasing managers' index—a broad gauge of business activity across the manufacturing and services sectors—rose to 54.4 points in December from 53.9 the previous month. Anything above 50 indicates growth.

The firm said that manufacturing led the acceleration, which points to quarterly economic growth of 0.4%. That's better than it has been for most of 2016 but is still modest compared with the United States.

IHS Markit's chief economist, Chris Williamson, said it's too early to say whether the economic performance at the end of 2016 represents the "much-needed springboard" to further growth this year.

"Much depends on political events over the course of the next year," he said. "The concern is that domestic demand is likely to remain subdued over the course of 2017 as political uncertainty dominates, resulting in another year of disappointing growth across the region as a whole."

Stocks Drift Lower

European stocks drifted lower Wednesday after a solid session in Asia that was largely defined by renewed strength in the US dollar.

Britain's FTSE 100 slipped around 0.07%, or 5 points, as a massive 8% decline for shares in Next Plc pulled UK retailers lower across the board. Germany's DAX performance index fell 22 points in the opening 90 minutes of trading while the CAC-40 in Paris edged 2.7 points lower to 4,900. The Stoxx 600 Index, the broadest measure of European share price performance, fell 0.12% to 365.26.

Next Plc shares fell more than 13% in early London trading after the retailer posted weaker-than-expected sales Wednesday and cautioned that the outlook for the year ahead would be "tougher".

Sales for the 54-day period from Nov. 1 until Christmas Eve fell 0.4%, the company said in a statement, while full-year sales were marked at +0.4% from 2015.

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