Rising housing costs push up eurozone inflation across the board, says ECB

Housing costs in the euro zone have risen sharply in the past year, boosted by soaring property prices in Germany coupled with high inflation in general, a study by the European Central Bank (ECB) showed on Wednesday.

Housing costs are largely excluded from the main inflation figures, but the ECB pledged last year to take this into account even before official data can be adjusted to better reflect real price changes experienced by households.

While housing costs have not significantly deviated from general price changes over several decades, they would have driven inflation for most of the past decade and raised inflation in the third quarter of last year by just over 0.3% .

Even with inflation now above double the ECB’s 2% target, the bank has kept its monetary policy especially expansionary, amid an assumption that the inflation rate will fall below target next year without any intervention.

The ECB now forecasts inflation at 3.2% this year, falling to 1.8% in 2023.

“Developments in the most recent quarters are mainly explained by the strong increase in Germany,” the ECB said in an article in the Economic Bulletin.

Eurozone inflation rose to a record 5.1% in January, well above expectations, prompting the ECB to abandon its pledge not to raise interest rates this year and set the stage to end debt purchases, based of its stimulus policy in recent years.