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Eurozone inflation drops to lowest level in over three years

Consumer prices in the 17-member euro area have fallen to their lowest level in over three years amid a weak economic recovery. It gives the European Central Bank more room for its loose monetary policy.

Eurozone inflation hit a three-and-a-half-year low in September, the EU statistics office (Eurostat) reported Wednesday. It showed that consumer price pressures had dropped further as the economy was recovering only slowly and domestic demand was remaining volatile.

The inflation rate in the euro area dropped to 1.1 percent, compared with the same month a year earlier, marking its lowest level since February 2011. The reading was down from 1.3 percent month-on-month, well below the European Central Bank's (ECB) official target of a rate close to, but below 2 percent.

ECB executive board member Peter Praet said he expected inflation pressures in the euro area to remain subdued in the medium term, including 2015.

ECB leeway

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Confident German consumers

The current situation enables the central bank to stick to its ultra-loose monetary policy, with its main refinancing rate being at a record low of 0.5 percent. The bank has said repeatedly it stands ready to react, if the economy needs a further policy boost.

In a separate release, Eurostat pointed out the eurozone's foreign trade surplus grew to 7.1 billion euros ($9.6 billion) in August, up from 4.6 billion euros in the same month in 2012. Exports dropped by 5 percent, while imports dipped by 7 percent year-on-year.

Market pundits said they expected a brightening export picture in the euro area's southern member states such as Greece and Portugal as their economies were in the process of regaining competitiveness due to ongoing structural reforms.

hg/hc (Reuters, AFP)

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