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Euro area inflation falls to 4-year low

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Euro area inflation falls to 4-year low

Consumer inflation in the euro area fell to 0.7 percent in October, the lowest since 2009. The annualized reading was in-line with economists’ forecasts, but was well below the previous month’s pace of 1.1 percent. Consumer inflation fell 0.1 percent over the previous month, according to Eurostat. The official data confirmed a preliminary estimate made by Eurostat at the end of October.

The Consumer Price Index tracks the price changes of a representative basket of goods and services. It’s one of the most closely watched indicators of purchasing trends and inflation in the currency region.

Consumer inflation declined at an annualized rate of 1.9 percent in Greece, more than any other country. Inflation fell 0.5 percent in Cyprus. The highest rate of inflation growth in Europe occurred in Estonia and the United Kingdom (2.2 percent), although the latter is not part of the currency region. The largest positive contributions to euro area annual inflation came from the electricity, accommodation and tobacco industries. The biggest negative contributions came from fuel, telecommunications and heating oil.

“While this is welcome news for [euro area] consumers as it helps their purchasing power, inflation is getting uncomfortably low for the ECB and is now substantially below its target,” said Howard Archer of IHS Global Insight. Last week the European Central Bank slashed interest rates for the second time this year to counteract slow inflation growth. The ECB’s inflation target is currently set at 2 percent. The central bank expects consumer inflation to average 1.4 percent in 2013. This figure is expected to grow to 1.5 percent next year and 1.6 percent in 2015.

ECB officials will resort to more drastic policy tools to invigorate growth in the currency region should a rate cut not suffice. The benchmark lending rate is currently set at 0.25 percent.

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