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DPA news service (jen)December 17, 2008

European inflation fell sharply to 2.1 percent in November as fuel prices dropped, new data shows. This adds to the pressure on the ECB to press on with its interest-rate cutting cycle well into the new year.

Aral gas station pump in Germany
Falling oil prices helped push inflation lowerImage: AP

The decline in the 15-member euro-zone's annual inflation last month from 3.2 percent in October came as falling oil and commodity prices helped to ease cost pressures, the European Central Bank data released Wednesday, Dec. 17, showed.

The German statistics office also released figures confirming that inflation in Europe's biggest economy dropped to 1.4 percent in November, compared with 2.4 percent in October.

Nearing 2 percent target

The drop in euro-zone consumer prices in November also took annual inflation down close to the ECB's target of 2 percent with the Frankfurt-based bank delivering an historic 75-basis-points rate cut earlier this month, aimed at helping to spur growth in the currency bloc.

European Central Bank President Jean-Claude Trichet looks on during a news conference
Trichet hasn't decided on a further cutImage: AP

But since then, ECB chief Jean-Claude Trichet has left open whether the bank will lower borrowing costs again at its meeting planned for January.

Since the ECB's governing council's decision this month, Trichet has the bank sees limits on how much further it could lower rates.

Growing pressure for a cut

But with figures pointing to conditions in the euro-zone economy worsening and central banks around the world stepping up their moves to cut rates, the ECB is likely to face growing pressure to continue trimming borrowing costs next year.

This is particularly the case following the dramatic 75-basis-points cut announced Tuesday by the US Federal Reserve, which slashed rates in the world's biggest economy to a target range of between zero and 0.25 percent.