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Eurozone Inflation Slows On Energy Prices

EurozoneInflation 093013

Eurozone inflation slowed more-than-expected to the lowest since early 2010 in September due to a notable fall in energy prices, giving ample room for the central bank to undertake growth-oriented measures to fortify nascent recovery.

Inflation in the euro area slowed to 1.1 percent, the lowest since February 2010, from 1.3 percent in August, preliminary data from Eurostat showed Monday. Economists had expected a more modest slowdown in inflation to 1.2 percent.

Inflation has been staying below the European Central Bank's 2 percent ceiling for the eighth month in a row. Nonetheless, at its October 2 meeting in Paris, the ECB is expected to keep rates unchanged at a record low.

The initial estimate suggests that a fall in energy prices together with a slowdown in food inflation helped to bring inflation down to a more-than-three-year low. Final figures for September are due on October 16.

At the same time, core inflation that excludes prices of energy, food, alcohol, and tobacco, slipped marginally to 1 percent from 1.1 percent in August.

Although another rate cut appears to be off the table, further action to boost liquidity in the banking sector looks increasingly likely, James Howat, European economist at Capital Economics said.

Cost of energy fell 0.9 percent, following the 0.3 percent drop a month ago. In addition, the growth in food, alcohol and tobacco prices slowed to 2.6 percent from 3.2 percent.

Cost of services and non-energy industrial goods increased 1.5 percent and 0.3 percent, respectively.

According to IHS Global Insight's Chief European economist Howard Archer, inflation is set to hover around 1-1.5 percent over the coming months. But much will clearly depend on oil price developments.

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