Eurozone inflation jumps to 0.9% in January

Headline eurozone inflation increased sharply in January to 0.9%, according to European Union figures, but several analysts argued that temporary factors distorted the data.

This is the largest monthly rise ever recorded in eurozone inflation, after it spent four months at -0.3%. Core inflation also rose to a five-year high of 1.4%, from 0.2% in December. Since 2013, eurozone inflation has been consistently below the European Central Bank’s target of below, but close to, 2%.

The increase was widely anticipated, although it was larger than what most analysts expected, says Frederik Ducrozet, strategist at Pictet Wealth Management. “The ECB had warned against any overinterpretation of short-term moves in HICP [Harmonised Index of Consumer Prices] this year as several technical factors will add a lot of noise to monthly data,” he says.

Ducrozet argues that three main factors distorted the data last month. The main one is the increase in the value-added tax in Germany, alongside carbon taxes and other administrated prices. France and Italy have delayed the sales period due to the Covid-19 pandemic.

The third main factor, Ducrozet argues, are the new HICP weights the EU statistical agency Eurostat is implementing this year. “While the average effect over 2021 should remain limited, it looks like the changes pushed core inflation higher in January by at least 20 basis points,” added Ducrozet.