European CPI Drop More Than Estimated

European consumer prices dropped more than initially estimated in July as energy costs decreased and rising unemployment prompted households to cut spending.

Prices in the 16-member euro region fell by a record 0.7 percent from the year-earlier month after declining 0.1 percent in June, the European Union statistics office in Luxembourg said. The decline exceeded the 0.6 percent estimate published on July 31. In the month, prices declined 0.7 percent.

Companies from Carrefour SA to Unilever have offered discounts to encourage consumers to spend just as a 39 percent drop in oil prices over the past year pushes down inflation. The European Central Bank on Aug. 6 kept its key interest rate at a record low to support the economy, with President Jean-Claude Trichet saying inflation will turn positive later this year.

The core inflation rate, which excludes volatile energy and food costs, eased to 1.3 percent in July, the lowest in three years, from 1.4 percent in June. Energy prices dropped 14.4 percent in July from a year ago and fell 1.8 percent from the previous month.

Adding to signs of waning price pressures, European producer prices dropped a record 6.6 percent in July from a year earlier. In Germany, Europe’s largest economy, consumer prices posted their first annual drop in more than 22 years in July and wholesale prices plunged a record 10.6 percent.

The ECB, which aims to keep inflation just under 2 percent, has cut its benchmark rate to a record low of 1 percent and started buying as much as 60 billion euros ($86.4 billion) of covered bonds to stimulate lending and boost the economy. The Frankfurt-based bank forecasts that euro-region inflation will average 0.3 percent this year and around 1 percent in 2010.

European CPI Drop More Than Estimated, Bloomberg
8/14/2009 9:44:18 AM