European Inflation Falls as Oil Slides | Europe| News and current affairs from around the continent | DW | 31.10.2008
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European Inflation Falls as Oil Slides

European inflation edged down in October, data released Friday showed, as a result helping to pave the way for the European Central Bank to deliver another hefty rate cut next week.

Consumers in France and Germany are growing increasingly concerned about a recession

Inflation continues to sink, along with the hope for an economic upturn

The European Union's statistics office said its preliminary estimate of annual inflation in the 15-member eurozone edged down to 3.2 percent this month from 3.6 percent in September.

This is the lowest inflation rate since January and substantially down from the 4 percent it hit in July. Analysts had also expected inflation to come in at 3.2 percent in October.

Another reduction in borrowing costs by the ECB would also form part of a new wave of rate cuts by the world's leading central banks with the US Federal Reserve on Wednesday joining the monetary authorities in Norway and China in reducing the cost of money.

The Bank of England along with the monetary authorities in Switzerland are also expected to follow up this week's rate cut moves.

Oil prices fall as demand drops

The drop in euro zone inflation follows the recent fall in energy costs, with oil prices hovering at about $65 (51 euros) a barrel in late European trading Thursday on the prospects that slowing global economic growth will curb demand. In July, oil prices were heading towards $150 a barrel.

The sun rises behind the oil derricks on the Caspian Sea near Baku, Azerbaijan

Due to the current fianancial situation, demand for oil will curb

Analysts have predicted that the drop in energy prices and slowing global growth could result in further falls in inflation in the coming months.

In harmonized European terms, annual German inflation fell from 3 percent in September to 2.5 percent this month, its lowest in more than a year.

ECB chief Jean Claude Trichet signaled Monday that the bank's rate-setting council might deliver another cut in borrowing costs at its meeting next month with analysts speculating that further reductions could be in the pipeline.

"I consider possible that the Governing Council will decrease interest rates once again at its next meeting on Nov. 6," said Trichet.

"It is not a certainty, it is a possibility," he said.

Analysts believe the grim economic outlook combined with dwindling inflation gives the ECB scope to follow up the 50-basis cut it delivered in July as part of a coordinated action by the world's leading central banks to shore up the global economy with another 50-basis points cut next Thursday.

Confidence crisis in France and Germany

Indeed, since July the economic climate in the euro zone has continued to worsen with business confidence in Germany and France falling sharply amid signs that consumers in the currency bloc's two biggest economies were also growing concerned about a looming recession.

Economic confidence in Europe plummeted in October to its lowest level in 15 years, a key survey released Thursday said.

As a reminder of Europe's grim economic prospects, data also published Friday showed German retail sales dropped by a more-than- forecast 2.3 per cent in September when the world financial crisis triggered a round of global share market turmoil. Analysts had forecast a 1 percent fall.

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