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Euro zone inflation rises to a four-year high, above ECB target

Euro zone inflation at 2.0 percent in February

Euro zone annual inflation rose to a four-year high of 2 percent in the month of February, flash estimate data has shown Thursday.

This is a 0.2 percentage point increase from the month of January and is mainly supported by energy prices. According to the European statistics office Eurostat, energy accelerated to 9.2 percent compared to 8.1 percent in January.

Food, alcohol and tobacco are the second most important inflation drivers, which is estimated to have reached 2.5 percent in February.

Thursday's inflation forecasts are positive for the European Central Bank, which has the arduous task of reflating the economy. With the inflation rate above its target, the ECB will be under pressure to scale back its bond-buying program.

"Headline inflation in the euro area is currently being lifted by a 'perfect storm' in the non-core components. Base effects from last year's fall in oil prices are pushing up energy inflation and a supply shock in fresh food prices, due to cold weather in southern Europe, is driving food inflation higher," Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.

However, some analysts say that core inflation remains too weak. It was unchanged at 0.9%.

"We think core inflation will nudge higher to 1.1 percent in Q2, helping to push the headline to about 1.4 percent. This is well below the ECB's target, and the central bank will reiterate its vigilance against downside risks next week. But a confrontation is looming between very aggressive monetary policy and an economy with stable GDP growth, falling unemployment and normalizing inflation."

Unemployment in the 19-member area was at 9.6 percent for the month of January. This is unchanged from the levels seen in December, but it represents a 0.8 percent decrease from a year ago. This is the lowest level registered since May 2009.

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