European Inflation Slows


European inflation slowed for a second month in September as oil prices fell, making it easier for the European Central Bank to cut interest rates again in response to the financial and economic crisis.

The inflation rate in the euro area fell to 3.6 percent from 3.8 percent in August, the European Union statistics office in Luxembourg said today. That matched the estimate published on Sept. 30. On the month, prices rose 0.2 percent in September.

The ECB unexpectedly cut its key rate by one-half percentage point last week to 3.75 percent as part of a global coordinated effort to ease the economic effects of the financial crisis. As the growth outlook deteriorates and inflation continues to ease, economists at banks including Unicredit MIB and Fortis Bank NV say the ECB will cut its benchmark rate further, to 2.5 percent by mid-2009.

ECB President Jean-Claude Trichet yesterday said the coordinated rate cut was ``justified by the fact that the intensification of the financial crisis had further diminished the upside risks to price stability and that central banks have regained control of inflation expectations.''

The ECB will probably lower its benchmark rate again this year and follow that with further reductions in 2009, Unicredit forecasts. It sees the ECB lowering its rate to 2.5 percent by June 2009 and expects inflation to ease to around 1.7 percent in that timeframe, below the central bank's 2 percent ceiling.

Crude-oil prices have dropped by almost 50 percent from their all-time high in the last three months, cutting the cost of gasoline and heating oil. From a year earlier, oil is down 10 percent to around $77 a barrel.

Energy-price inflation eased to 13.5 percent in September from 14.6 percent in August, according to today's report. Food- price inflation slowed to 5.7 percent from 6.2 percent.

The core rate of inflation, which excludes volatile food and energy prices, remained at 1.9 percent in September.


TradingEconomics.com, Bloomberg.com
10/15/2008 5:22:29 AM