European Inflation Rate Declines

Europe’s inflation rate fell the most in almost two decades last month as oil prices plunged, giving the European Central Bank more leeway to cut interest rates.

The inflation rate in the euro area declined to 2.1 percent from 3.2 percent in October, the biggest drop since at least 1991, the European Union statistics office in Luxembourg said today. That matched the initial estimate published Nov. 28.

ECB President Jean-Claude Trichet said yesterday there’s a limit to how far the bank can cut interest rates even as economic growth slumps and inflation cools. By comparison, the U.S. Federal Reserve yesterday cut its main rate to a target range” of between zero and 0.25 percent and said it will use all available tools” to battle the recession. The ECB has reduced the rate by 175 basis points to 2.5 percent since early October.

Euro area consumer prices fell 0.5 percent in November from the previous month, according to today’s report, with transport fuels knocking 0.41 percentage points off the monthly index.

The rate of annual energy-price inflation plunged to 0.7 percent from 9.6 percent and food-price inflation also eased. The core rate of inflation, which excludes food and energy prices, remained at 1.9 percent in November.

Inflation peaked at 4 percent in July after oil prices surged to a record $147 a barrel. Crude has since dropped by more than two-thirds to around $45 a barrel.

The drop in commodity prices and a deteriorating economic outlook has raised concern about the emergence of deflation. The ECB has discounted the threat, saying it sees disinflation, a slowing of price increases, rather than deflation, a period of sustained price declines.

European Inflation Rate Declines,
12/17/2008 6:24:40 AM