Euro-area inflation cooled to the slowest in almost four years in October, moving further away from the European Central Bank’s goal.
The annual rate fell to 0.7 percent, the lowest since November 2009, from 1.1 percent in September, the European Union’s statistics office in Luxembourg said in a preliminary estimate today. The median forecast in a Bloomberg News survey of 42 economists was for the rate to stay at 1.1 percent. Separate data today showed unemployment was at a record 12.2 percent in September.
The ECB has said there is a “subdued outlook” for price growth in the 17-nation euro region, and the October data marks the ninth straight month that the rate has been less than its 2 percent ceiling. While the economy has exited a recession and surveys have improved, unemployment is continuing to increase and the central bank predicts only a “gradual” recovery.
“We feel that the risks to our forecasts lie to the downside,” Morgan Stanley economists Melanie Baker, Jonathan Ashworth, Olivier Bizimana and Daniele Antonucci wrote in a note dated Oct. 25. If the inflation slowdown persists, “this might become increasingly difficult given how close we are now to the deflation danger zone,” they said.
The euro extended its decline against the dollar after the data were published and was trading at $1.3679 as of 10:04 a.m. London time, down 0.4 percent from yesterday.
Energy prices dropped an annual 1.7 percent in October after a 0.9 percent decline the previous month, today’s report showed. Prices of food, alcohol and tobacco rose 1.9 percent, slowing from a 2.6 percent pace in September, while the cost of services increased 1.2 percent.
The core inflation rate dropped to 0.8 percent in October from 1 percent, also surprising economists, who had forecast that it would remain unchanged.
The ECB has forecast an average rate of 1.5 percent this year and 1.3 percent in 2014. It has pledged to keep its benchmark interest rate at the current level of 0.5 percent or lower for an extended period.
“With energy price base effects becoming less favourable in the coming months and some indirect tax increases in the pipeline early next year. the falling streak in inflation is probably nearly over,” said Martin van Vliet, an economist at ING Bank NV in Amsterdam. “However, euro-zone headline inflation is still set to remain well below the ECB’s target in the foreseeable future.”
Today’s labor-market report showed that the jobless rate in August was revised to 12.2 percent from 12 percent previously. The jobless rate among those aged under 25 was 24.1 percent in September.
Today’s inflation data is an estimate and the statistics office will release final data for October on Nov. 15.