European Inflation Rate Holds Near Lowest Since 1999

By Jurjen van de Pol

March 2 (Bloomberg) -- Inflation in Europe stayed close to the lowest rate since 1999 in February as the global financial crisis undermined consumer confidence and curtailed spending.

Consumer prices in the euro area rose 1.2 percent, compared with a 1.1 percent increase in January, the European Union statistics office in Luxembourg said today. Economists expected a 1 percent inflation rate in February, according to the median of 32 forecasts in a Bloomberg News survey. The January reading was the lowest since July 1999.

Oil prices have plunged 70 percent from an all-time high last summer as the financial turmoil has curbed global growth and pushed the euro-zone economy into its worst recession since World War II. The European Central Bank has signaled it is ready to cut interest rates to a record low this week to bolster the economy.

“Today’s weak inflation data certainly provide further scope for a large cut in interest rates at the ECB’s meeting this week,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London. “The risk is still that 50 basis points does not provide enough of a cushion to the unraveling euro-area economy.”

All 55 economists surveyed by Bloomberg News predict the ECB to reduce the benchmark rate by 50 basis points, or one-half percentage point, to a record low 1.5 percent at its next meeting on March 5. The central bank already has cut the rate by 2.5 percentage points since early October.

The euro extended losses after the inflation report was published. The European currency traded at $1.2593 at 11:03 a.m. in London, down 0.6 percent.

Largest Economy

Inflation in Germany, Europe’s largest economy, and Italy unexpectedly accelerated in February. The German inflation rate rose to 1 percent from 0.9 percent in January, led by rising prices for package vacations and motor fuels, the Federal Statistics Office in Wiesbaden said last week.

“Fluctuations are always likely around a trend and all the indications continue to be that euro-zone inflation will come down significantly further over the coming months,” said Howard Archer, an economist at IHS Global Insight in London.

Europe’s manufacturing industry shrank at a record pace in February as export orders collapsed and companies scaled back production, Markit Economics said today. A gauge of manufacturing activity declined 33.5 from 34.4 in January, falling more than initially estimated.

The inflation report released today is an estimate. The statistics office will publish a detailed breakdown of the data, including energy-price inflation as well as the core rate, on March 16.

To contact the reporter on this story: Jurjen van de Pol in Amsterdam jvandepol@bloomberg.net