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Euro-Area Inflation Quickens, But Remains Far Below ECB’s Goal

Piotr Skolimowski

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Euro-area inflation accelerated in November, offering some comfort for the European Central Bank whose monetary stimulus has attracted increased scrutiny over potentially detrimental side effects.

The rate picked up to 1% from a three-year low of 0.7% in October, beating expectations for a 0.9% reading. More importantly, a measure stripping out volatile components quickened to 1.3%, the highest in seven months.

The headline rate is still well below the ECB’s goal of just under 2%. Recent shifts in inflation have been driven by energy, and the central bank has warned that underlying price pressures are “muted.”

The ECB has been struggling to lift inflation despite years of ultra-loose policy. The latest stimulus salvo included cutting interest rates further below zero and a fresh round of quantitative easing that’s set to continue until inflation is firmly tethered to its goal.

But the high degree of monetary support is attracting increasingly intense criticism. Sub-zero rates have riled German savers and raised the specter of pension cuts in the Netherlands. Banks across the euro area are also blaming the policy for their poor profitability.

In its latest Financial Stability Review, even the ECB warned of potential side effects, including threats to investment funds, insurers and in some real estate markets.

The ECB is likely to take stock of its experience when it starts a strategy review early next year under new president Christine Lagarde. Policy makers expect to tweak their inflation target -- fixing it at 2%, but will struggle to go much further than that, according to officials with knowledge of the matter.

Separately, the Eurostat said on Friday that euro-area unemployment dropped to 7.5% in October, the lowest since July 2008. Yet regional differences remain significant. While in Germany, only 3.1% of the working population remained without a job, the figure stood at 16.7% in Greece and 14.2% in Spain.

--With assistance from Kristian Siedenburg, Harumi Ichikura and Yuko Takeo.

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Fergal O'Brien, Catherine Bosley

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