European Inflation Slows as ECB Prepares for Another Rate Cut
Europe's inflation rate declined to the lowest since January as the European Central Bank prepares to cut interest rates for the second time in less than a month in response to the financial and economic crisis.
Inflation in the euro area eased to 3.2 percent in October from 3.6 percent in September, the European Union statistics office in Luxembourg said today. That matched the median of 27 economists in a Bloomberg News survey. A separate report showed unemployment stayed at 7.5 percent in September, the highest in more than a year.
The ECB unexpectedly cut its key rate by half a percentage point to 3.75 percent on Oct. 8 as part of a coordinated global action. ECB President Jean-Claude Trichet said Oct. 27 the bank may follow that emergency cut with another reduction at its Nov. 6 meeting and fellow policy maker Miguel Angel Fernandez Ordonez said the sharp drop in inflation is “very important.''
“The thing that was a preoccupation for the ECB three months ago, inflation, is rapidly coming down,'' said Philippe D'Arvisenet, chief global economist at BNP Paribas. “Definitely, they will cut rates'' next week.
Inflation in the euro area was last below 3 percent a year ago and has been above the ECB's 2 percent ceiling in every month since September 2007.
The figures released today are an estimate. The statistics office will publish a detailed breakdown of the data, including key food- and energy-price inflation, as well as the core rate, on Nov freecreditreports. 14. Crude-oil prices have dropped by 57 percent from their all-time high in the last four months, cutting the cost of gasoline and heating oil. From a year earlier, oil is down 33 percent to around $63.50 a barrel.
Growth Outlook
As the growth outlook deteriorates and inflation continues to ease, economists at banks including Royal Bank of Scotland Plc and Fortis say the ECB will cut its benchmark rate to at least 2.5 percent by mid-2009.
Recent data show that Europe's manufacturing and services industries contracted at a record pace in October, while executive and consumer confidence plunged to the lowest in 15 years. The interest-rate cut this month was the ECB's first since June 2003 and it followed an increase of one-quarter percentage point in July.
ECB Executive Board Member Jose Manuel Gonzalez-Paramo said this month that downside risks to economic growth “have accentuated'' and Governing Council member Nout Wellink said growth in Europe may stagnate next year.
“Growth is more likely to be closer to 0 percent than 1 percent next year,'' Wellink said in The Hague yesterday. The global economy “is looking worse than a month ago.''
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