European Consumer Prices Rise Less Than Estimated

European consumer prices rose less than initially estimated in November as lower food and housing costs offset increases in alcohol and transportation.

Prices in the 16-nation euro region rose 0.5 percent from a year earlier after falling 0.1 percent in October, the European Union statistics office in Luxembourg said today. While that was below an initial estimate of 0.6 percent published on Nov. 30, it was the first annual consumer-price increase in seven months.

The European Central Bank forecasts that inflation will remain “moderate,” even as oil prices have jumped 58 percent over the past year. At the same time, companies continue to reduce costs and cut jobs to shore up earnings after the economy pulled out of the recession in the third quarter.

“Energy price effects are set to continue over coming months,” said Colin Ellis, an economist at Daiwa Securities SMBC Europe Ltd. in London. “But the fall back in labor-cost growth in the third quarter provides the ECB with another reason to keep interest rates low, as it suggests that inflationary pressures are currently subdued.”

The euro was little changed against the dollar after the data, trading at $1.4561 at 10:05 a.m. in London, up 0.2 percent on the day. The yield on the German 10-year benchmark bond was unchanged at 3.23 percent.

For now, companies are still cutting costs. European labor costs increased at the slowest pace in more than a year in the third quarter, data showed yesterday. At 9.8 percent, the jobless rate is the highest in almost 11 years and may reach 10.7 percent next year, according to EU forecasts.

Stimulus Measures

Global central banks have started to withdraw stimulus measures as the world economy recovers from the recession. The Organization of Petroleum Exporting Countries yesterday raised its 2010 output estimate as world consumption revives.

The ECB said on Dec. 3 that it will scale back some emergency loans as the region’s economy gathers strength. The Frankfurt-based bank on that day kept borrowing costs at a record low of 1 percent.

There is no need for the central bank to raise interest rates in the first half of 2010 as inflation pressures stay muted, ECB Governing Council member Ewald Nowotny indicated in an interview this week in Vienna.

Euro-region inflation may average about 1.3 percent next year and around 1.4 percent in 2011, the ECB forecasts. The Frankfurt-based central bank aims to keep annual gains in consumer prices just below 2 percent. Core inflation, excluding volatile costs such as tobacco, food and energy, slowed to 1 percent in November from 1.2 percent in the previous month.

‘Steady Hand’

“If there’s no infringement with regard to these goals then I wouldn’t see strong pressure or a strong need to change the policy that we have, that means a policy of steady hand,” Nowotny said. “I do not see major threats for price stability in the near future.”

In November, prices of food dropped 1.2 percent from a year earlier, while housing costs fell 1 percent, today’s report showed. Prices of alcohol and tobacco increased 4.5 percent and household equipment was 1.2 percent more expensive. Energy prices declined 2.4 percent.

“It’s very clear still that there won’t be any easy and rapid recovery in the world economy,” ECB council member Erkki Liikanen said on Dec. 11. “We have come through a major financial crisis, and always after a financial crisis the recovery is slow and shaky and that is where we are now.”

By Simone Meier, Bloomberg
December 16, 2009