Euro-Region Inflation Slows More Than Initially Estimated
January 17, 2012, 10:04 AM ESTBy Simone Meier
(Updates with euro in fifth paragraph. For more on Europe’s debt crisis, click EXT4.)
Jan. 17 (Bloomberg) -- Euro-region inflation slowed more than initially estimated in December as the economy weakened, giving the European Central Bank time to assess the impact of two rate cuts over the past months.
The inflation rate in the 17-nation euro area fell to 2.7 percent from 3 percent in November, the European Union’s statistics office in Luxembourg said today. That’s the lowest since August and below an initial estimate of 2.8 percent published on Jan. 4. Core inflation, excluding volatile costs, remained at 1.6 percent, it said.
The ECB, which aims to keep inflation just below 2 percent, kept its benchmark interest rate at 1 percent on Jan. 12, matching a record low. President Mario Draghi called risks to the inflation outlook “broadly balanced.” With the economy edging toward a recession and tougher austerity measures weighing on consumer demand, companies may find it more difficult to pass on higher costs, curbing price pressures.
“Euro-region inflation will move toward 2 percent in the first half of 2012,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf, Germany. “The ECB will probably wait for a while before cutting interest rates further -- in March at the earliest.”
ECB Rate Cuts
The euro extended gains after the data were released, trading at $1.2795 at 11:01 a.m. in Brussels, up 1 percent.
Consumer prices rose 0.3 percent from November, when they advanced 0.1 percent, today’s report showed. Inflation slowed in 21 European Union member states and accelerated in two. Slovakia, Poland and Cyprus had the highest inflation rates, while Malta and Sweden reported the lowest gains.
Euro-region inflation may average 2 percent this year, down from an estimated 2.7 percent in 2011, the ECB said on Dec. 8, when cutting the benchmark rate for a second time in as many months. In 2013, inflation will slow to 1.5 percent, it said.
With crude-oil prices up 15 percent over the past three months and the euro’s drop making imports more expensive, companies may be forced to lower costs to help protect earnings as demand weakens. Euro-region unemployment held at 10.3 percent in November, the highest in more than a decade, and economic confidence dropped to a two-year low last month.
‘Uncertain’ Economy
Prices of alcohol and tobacco rose 3.8 percent in December from a year earlier, while housing costs advanced 4.9 percent, the statistics office said. Energy prices rose 9.7 percent from December 2010, according to the statement.
Jean-Paul Agon, chief executive officer of L’Oreal SA, the world’s largest cosmetics maker, said on Jan. 4 that the “economic environment is uncertain.” The Paris-based company will continue to expand in faster-growing markets, he said. Sergio Marchionne, who runs Fiat SpA, said on Jan. 12 that the European car market may be flat until 2014, while Italian sales are set to hit the lowest since 1985 this year.
Adding to signs of easing cost pressures, euro-region producer-price inflation slowed to 5.3 percent in November compared with 5.5 percent in the previous month. In Germany, Europe’s largest economy, wholesale prices rose 3 percent in December from a year earlier after increasing 4.9 percent in November.
Still, Draghi, who took over the ECB helm in November, said on Jan. 12 that while the economic outlook “remains subject to high uncertainty and substantial downside risks,” inflation will likely stay above 2 percent “for several months.” The “monetary stance is and will remain accommodative,” he said.
The statistics office is scheduled to release an initial estimate of January inflation next month.
--Editors: Patrick G. Henry, Jeffrey Donovan
To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
