Euro-area core inflation at two-year high may offer ECB relief

[ZURICH] Euro-area core inflation increased to the highest since August 2013, offering the European Central Bank an unexpected reprieve.

The rate - which excludes volatile elements such as food and energy - climbed to 1.1 per cent in October, the European Union's statistics office in Luxembourg said on Monday. Economists predicted it would stay at an initial 1 per cent reading. Annual consumer prices rose 0.1 per cent in the month, compared with a flash estimate for stagnation and up from minus 0.1 per cent in September.

The revisions come as ECB policy makers debate whether more stimulus is needed to revive inflation in the 19-nation bloc. Still, if ECB President Mario Draghi's concerns materialise this mild pickup in prices may prove short-lived. He told lawmakers just last week that the outlook for core inflation has "somewhat weakened," signaling that policy makers are ready to boost stimulus next month if necessary.

"Probably, it takes some pressure off them to do drastic measures," said Alan Clarke, an economist at Scotiabank in London, who still sees a "strong case" for the ECB boosting stimulus at its Dec 3 meeting.

"I think we want to get some reassurance that this uptick we've had isn't temporary and isn't going to reverse any time soon."

The ECB has signaled additional easing is in the pipeline, citing renewed downside risks for growth and the region's inflation outlook, which risks becoming entrenched well below the ECB's goal of 2 per cent.

There is a 97 per cent chance that the ECB's Governing Council will cut its deposit rate by 10 basis points in December, taking it to minus 0.3 per cent, ECB-dated Eonia forwards show.

BLOOMBERG