European Prices Fall 0.6% in July

European inflation fell by the most in at least 13 years in July after energy costs declined and unemployment rose to the highest in a decade.

Prices in the euro region dropped 0.6 percent from a year earlier, the most since the data were first compiled in 1996, the European Union statistics office in Luxembourg said.

As consumers and companies reduce spending to weather the worst recession in more than 60 years, inflation is also being pushed lower by a 50 percent decline in the price of crude oil over the last year.

The European Central Bank aims for inflation to be just under 2 percent and ECB President Jean-Claude Trichet has said he anticipates inflation will temporarily remain negative” before turning positive by year end. While the ECB says medium- to long-term inflation expectations are firmly anchored,” a European Commission measure of consumer price expectations over the next 12 months fell in July to the lowest since at least 1990, a report showed yesterday.

The European Commission anticipates inflation will turn positive again in the second part of the year,” Amelia Torres, the spokeswoman for EU Monetary Affairs Commissioner Joaquin Almunia, told reporters today in Brussels. She said energy and food prices drove the inflation number lower after crude oil hit a record $147 a barrel in July last year.

German consumer prices fell in July from a year earlier for the first time in 22 years, data showed this week. Spain and Ireland have experienced annual price declines since March as Tesco Plc and Marks & Spencer Group Plc have reduced prices in their Irish stores.

The inflation report released on July 31 is an estimate. The statistics office will publish a detailed breakdown of the consumer-price data, including energy-price inflation as well as the core rate, on Aug. 14.

European Prices Fall 0.6% in July, Bloomberg
7/31/2009 9:42:42 AM