Euro zone inflation rose more than expected in August, official data showed on Thursday, just as the European Central Bank prepares to debate whether to tighten policy after 2 and a half years of unprecedented stimulus.

Inflation in the 19-country currency bloc, targeted by the ECB at just below 2%, accelerated to 1.5 % in August from 1.3%, coming just ahead of expectations for 1.4% on the back of higher energy costs, Eurostat said on Thursday.

Underlying inflation, or prices excluding volatile food and energy costs, a figure closely watched by ECB policymakers, held steady at 1.3%, beating forecasts for 1.2%.

While the figures may strengthen the case of conservative policymakers, who are pushing for the ECB to wind down its asset-buying next year, the ECB is also now dealing with a strengthening euro, which pushes down prices.

Launched 2 and a half years ago, when the threat of deflation appeared real and imminent, the ECB's €2.3 trillion bond purchase scheme is due to expire at the end of the year, and policymakers promised to decide this "autumn" whether to extend the purchases or wind them down.

The eurozone economy is now growing for the 17th straight quarter, but wage growth is still paltry and sizable slack in the labor market suggests that wage inflation, a vital ingredient for overall inflation, may be sometime away, an argument for some policymakers to continue with stimulus.

Indeed, unemployment held steady at 9.1% in July, Eurostat said separately, with France, Spain and Italy all above the euro zone average. (Reuters)

Source: www.businessworld.ie