EU CRACKS DEEPEN: Germany and ECB set for showdown as inflation soars to four-year high

TENSIONS between German politicians and the European Central Bank (ECB) are likely to erupt again after inflation in the eurozone jumped to its highest level in four years in December.

By LANA CLEMENTS

PUBLISHED: 03:38, Thu, Jan 5, 2017 | UPDATED: 08:43, Thu, Jan 5, 2017

The cost of living jumped to 1.1 per cent last month, almost double November's 0.6 per cent, as measured by official European Union data office Eurostat.

Prices across the bloc are now rising at the fastest pace since September 2013. 

But Germany saw a much higher rise in price inflation at a hefty 1.7 per cent, making life more expensive for residents within the eurozone's largest economy. 

Investors fear the inflation figures will make the next meeting of ECB governing council in March one of the most difficult, as policymakers try to implement policies that cover vastly different economies of eurozone members. 

The ECB is helping to drive up inflation across the region with its mammoth money-printing programme, which injects billions of euros into the eurozone every month.

GETTY

ECB chief Mario Draghi and Wolfgang Schaeuble have exchanged harsh words in the past

Policymakers hope the extra money will improve lending conditions and stimulate growth across regions. 

Last month the ECB announced the programme would be extended after it had been due to finish in March, as the eurozone faces Brexit and a number of political risks. 

But the surging cost of living in Germany - coming ahead of national elections - means the ECB's policies are expected to attract fresh criticism from Angela Merkel's ruling party, who will be acutely aware of voter concerns.

The ECB will now have to navigate these worries, while still faced with the task of trying to boost growth. 

Naeem Aslam, chief market analyst at Think Market, said: "The Eurozone’s economic data and has raised many questions for investors. 

"The inflation data has shown exceptionally strong reading and this is going to get the blood pumping among hawks who sit on the ECB board. 

"The bank has kept its monetary policy ultra-loose because of lower inflation and rise in fuel prices have started to push the inflation number higher.

"The question is how much the ECB will have to rekindle their asset purchase program if inflation data continue to improve at this pace. 

"This has spooked some investors over in Europe."

Last year German politicians launched stinging attacks on the ECB's ultra low interest rates, blaming the policies for hurting savers and fuelling discontent with Mrs Merkel's ruling party.

The Chancellor's right-hand man Wolfgang Schaeuble has been one of the most vocal critics of the ECB, ridiculing so-called Quantitative Easing by the Bank. 

But head of the ECB Mario Draghi remained defiant in the face of pointed comments. 

Last year he said: "We have a mandate to pursue price stability for the whole of the eurozone not only for Germany.

"We obey the law, not the politicians, because we are independent as stated by the law."

http://www.express.co.uk/finance/city/750230/Germany-ECB-showdown-eurozone-inflation-soars-to-four-year-high