Eurozone inflation jumps to 1.1%, highest since 2013

Brussels: Inflation in the eurozone jumped in December to the highest level in more than three years on the back of surging oil prices, official EU figures showed on Wednesday.

The 1.1 percent figure for the 19-country single currency area nearly doubled November`s 0.6 percent in a boost for the fragile economic recovery.

The news edges inflation closer to the European Central Bank`s prized inflation target although it is still a way off the desired 2.0 percent.

Inflation reflects underlying consumer demand and is a key sign of health in a eurozone economy already facing uncertainty over Brexit and the election of Donald Trump.

The last time inflation was at the same level was in September 2013, the European Union`s statistics agency Eurostat said.

The latest figure was boosted sharply by the rise in energy prices triggered by oil cartel OPEC`s December decision to cut output.

Analyst Howard Archer said the latest figure was "more than originally expected but perhaps less than suspected after German inflation jumped to 1.7 percent."

France and Spain also showed inflation advancing in data released Tuesday, the same day as Germany, but analysts warned that an overall EU is still far off.

Italy saw consumer prices fall in 2016, the first year of deflation since 1959, according to official data published Wednesday.

The figure compounds fears for the Italian economy as it struggles to stave off a banking crisis.

- `Political uncertainty dominates` -

For the eurozone generally, Archer said energy inflation, at 2.5 percent, was responsible for the most of the rise. 

Core inflation -- stripped of volatile food and oil -- only edged up to 0.9 percent from 0.8 percent in November, he noted.

Analysts surveyed by financial services provider Factset had predicted 1.0 percent inflation for the eurozone.

The eurozone`s low inflation rate has been a huge worry for the ECB as it pushes through a massive stimulus programme to get the faltering economy back on track.

ECB chief Mario Draghi has said inflation would reach its target level by 2018 or 2019.

The central bank has set interest rates at record lows and pumped hundreds of billions of euros into the economy by buying up bonds and offering cheap funds to the banks in order to bolster growth.

Capital Economics analyst Jennifer McKeown said despite the encouraging December figures core inflation still seemed subdued.

"We suspect that asset purchases (the ECB`s monetary policy) will ultimately continue well into 2018," she said.

Separately, eurozone business activity hit its highest rate since May 2011 in December, but the outlook remains hostage to political developments, a closely watched survey showed Wednesday.

Data monitoring company IHS Markit said "political uncertainty dominates" -- an apparent reference to Trump`s election and continuing turmoil over Brexit.

It said its December Composite Purchasing Managers Index came in at a final 54.4 points, up from November`s 53.9 points. 

The PMI measures companies` readiness to spend on their business and so gives a good idea of how the underlying economy is performing. Any reading above the boom-bust 50 points line indicates the economy is expanding.

"Much depends on political events over the course of the next year," IHS Markit chief business economist Chris Williamson said.