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Europe inflation falls to lowest
By Ben Sills |
January 7, 2009, Wednesday
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Print Edition
Print Edition
EUROPE'S inflation rate fell to the lowest in more than two years in December as oil prices plunged and consumer spending slumped, increasing the scope for the European Central Bank to reduce borrowing costs further.
Consumer-price inflation in the euro area slowed to 1.6 percent from 2.1 percent in November, moving below the ECB's 2-percent ceiling for the first time since August 2007, the European Union statistics office in Luxembourg said yesterday. Economists expected prices would gain 1.8 percent in December, according to the median of 28 forecasts in a Bloomberg News survey.
"The main driver seems to be energy inflation, but there are signs of a slowdown in core inflation as well," Luigi Speranza, an economist at BNP Paribas in London, said before the report. "We expect this slowdown in inflation to continue quite sharply and inflation to turn negative in mid-2009."
As the global financial crisis damps economic growth, slowing inflation may prompt the ECB to extend a series of interest rate cuts that already has seen its key rate fall by 1.75 percentage points since early October, central bank council member Vitor Constancio said on Monday. The ECB last month forecast that the euro-area economy will contract about 0.5 percent this year, which would be the first annual drop in gross domestic product since the euro's introduction a decade ago, according to Bloomberg News.
Carrefour acts
Retail sales fell for a seventh month in December, manufacturing shrank at a record pace and lending to the private sector stagnated, reports in the past month showed. Carrefour SA, Europe's largest retailer, said on December 17 that it plans an "aggressive" discounting campaign to protect its market share as consumers scale back on spending.
As global growth slows and energy costs decline amid slackening demand, concerns about deflation are increasing. The price of crude oil has fallen by two-thirds since reaching a record US$147.27 a barrel in July.
ECB policy makers, who aim to keep the inflation rate just below 2 percent, have indicated the chances the central bank's governing council will lower borrowing costs when it meets next week are increasing as statistics show the economy falling deeper into a recession.
Consumer-price inflation in the euro area slowed to 1.6 percent from 2.1 percent in November, moving below the ECB's 2-percent ceiling for the first time since August 2007, the European Union statistics office in Luxembourg said yesterday. Economists expected prices would gain 1.8 percent in December, according to the median of 28 forecasts in a Bloomberg News survey.
"The main driver seems to be energy inflation, but there are signs of a slowdown in core inflation as well," Luigi Speranza, an economist at BNP Paribas in London, said before the report. "We expect this slowdown in inflation to continue quite sharply and inflation to turn negative in mid-2009."
As the global financial crisis damps economic growth, slowing inflation may prompt the ECB to extend a series of interest rate cuts that already has seen its key rate fall by 1.75 percentage points since early October, central bank council member Vitor Constancio said on Monday. The ECB last month forecast that the euro-area economy will contract about 0.5 percent this year, which would be the first annual drop in gross domestic product since the euro's introduction a decade ago, according to Bloomberg News.
Carrefour acts
Retail sales fell for a seventh month in December, manufacturing shrank at a record pace and lending to the private sector stagnated, reports in the past month showed. Carrefour SA, Europe's largest retailer, said on December 17 that it plans an "aggressive" discounting campaign to protect its market share as consumers scale back on spending.
As global growth slows and energy costs decline amid slackening demand, concerns about deflation are increasing. The price of crude oil has fallen by two-thirds since reaching a record US$147.27 a barrel in July.
ECB policy makers, who aim to keep the inflation rate just below 2 percent, have indicated the chances the central bank's governing council will lower borrowing costs when it meets next week are increasing as statistics show the economy falling deeper into a recession.
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