FRANKFURT, (Reuters) – The Eurozone saw a sharp rise in housing prices last year. This was attributed to a spike in German property prices, which are causing an increase in overall inflation. A Wednesday study by the European Central Bank showed that this trend continued.

Although housing costs are not included in headline inflation statistics, the ECB pledged last year that it would take them into consideration even before the official data could be adjusted to reflect actual price increases experienced by households.

Although the housing cost does not differ significantly from other price movements over many decades, they could have added inflation for much of the past decade. They would also have raised inflation in the 3rd quarter last year by slightly more than 0.3%.

Despite inflation being more than double the ECB target of 2%, the bank is still loosing its policy based on the assumption that it will drop below the target in the next year.

Inflation is currently at 3.2% in 2018, falling to 1.8% by 2023. So even a modest increase in home prices, price growth could be right on target or higher next year.

GRAPHIC – House price impact on euro zone inflation

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The Economic Bulletin stated, “Developments over the last few months are mostly explained by Germany’s sharp increase,”.

“Since 2011, there has been a small difference in the Harmonized Index of Consumer Price with and Without Owner Occupied Homes,” said the ECB.

The record-breaking Eurozone inflation reached 5.1% in January. This was well beyond expectations. It prompted the ECB not to increase interest rates in this year’s pledge and prepared the groundwork for ending its debt buys policy, which has been the foundation of its recent stimulus policies.

GRAPHIC-Country by country contribution towards euro zone house prices growth

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Although the ECB doesn’t project house prices rising in 2023, the bank argued that market movements are influenced by business cycles. The bank expects further price hikes as it sees the economy growing at 4.2%. This is well ahead of historical trends.

The ECB stated that house price fluctuations are more often linked to financial markets and business cycles, but with significant variation from their long-term average 3.3%.