European Inflation Declines Less Than Forecast

European consumer prices dropped less than economists forecast in August as the economy recovered from the deepest slump in six decades.

Prices in the 16-member euro region fell 0.2 percent from the year-earlier month after declining a record 0.7 percent in July, the European Union statistics office in Luxembourg said.

Inflation may accelerate as the global economy emerges from the worst recession since World War II, stoking demand and driving up the cost of crude oil and other commodities. The European Central Bank has warned that the recovery may face obstacles as rising unemployment curbs consumer spending and helps keep a lid on prices.

Consumer prices in Italy, the euro region’s third-largest economy, unexpectedly increased 0.2 percent in August from a year earlier, the Italian Statistics Institute in Rome said.

Consumers in Europe anticipate prices will decline more steeply in the next year than they did in July, while companies’ projections are less negative than a month ago, a European Commission report showed on Aug. 28. A gauge of consumers’ price expectations over the next 12 months fell to minus 16, the lowest since the data were first compiled in 1990.

While oil prices are down about 40 percent from this time last year, they have more than doubled from a February low of $34 a barrel. In Germany, Europe’s largest economy, energy prices increased in August from July and helped to boost the annual inflation rate, which unexpectedly rose to zero.

The inflation report released today 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 Sept. 16.

European Inflation Declines Less Than Forecast, Bloomberg
8/31/2009 9:18:02 AM