(Updates with euro in fifth paragraph. For more on Europe’s debt crisis, click EXT4.)
Feb. 1 (Bloomberg) -- European inflation remained steady in January, suggesting companies struggled to pass on higher costs to consumers as growth weakened.
The inflation rate in the 17-nation euro area was 2.7 percent, the same rate as in December, the European Union’s statistics office in Luxembourg said in an initial estimate today. The European Central Bank aims to keep inflation just below 2 percent.
Europe’s economy is showing signs of contraction as austerity measures across the region undermine consumer demand, making it more difficult for companies to pass on higher energy costs. ECB President Mario Draghi on Jan. 12 cited rising energy costs among the main reasons for faster inflation and called risks to the price outlook “broadly balanced.”
“It may seem like price pressure at first glance, but there’s a significant easing ahead,” Mario Jung, an economist BHF Bank AG in Frankfurt, said before today’s report. “In the fourth quarter at the latest, we’ll reach inflation rates just below 2 percent. We expect the ECB to cut the benchmark as low as 0.5 percent this year.”
The euro was little changed after the data were released, trading at $1.3141 at 11:07 a.m. in Brussels, up 0.4 percent.
Euro-region inflation may average 2 percent this year, down from an estimated 2.7 percent in 2011, the ECB said on Dec. 8 in its latest projections. Next year, consumer prices may increase 1.5 percent on average, it said.
Crude-oil prices have increased 7.4 percent over the past three months, eroding consumers’ purchasing power just as governments from Spain to Greece toughened austerity measures. European unemployment held at the highest in almost 14 years in December, suggesting companies are increasingly forced to cut jobs to protect earnings.
In France, Europe’s third-largest economy, consumer spending dropped 0.7 percent in December from the previous month as President Nicolas Sarkozy prepared to implement the second round of tax increases and spending cuts in less than half a year. Italian consumer confidence remained at a 16-year low in January after the government stepped up budget cuts.
Still, some companies have relied on faster-growing markets to bolster earnings. L’Oreal SA is “very confident” for 2012, Chief Executive Officer Jean-Paul Agon said on Jan. 4. So-called new markets, which accounted for 36 percent of sales last year, will become the company’s largest source of revenue by region this year, ahead of North America and Europe, he said.
The statistics office is scheduled to release a breakdown of January consumer prices later this month. Euro-area core inflation, which excludes volatile costs such as energy, held at 1.6 percent in December from the previous month.
The ECB will hold its next meeting on Feb. 9. The central bank has cut its interest rates twice over the past three months, bringing the benchmark to 1 percent, matching a record low.
--With assistance from Kristian Siedenburg in Vienna. Editors: Jones Hayden, Patrick Henry
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