Eurozone inflation drops below ECB's ceiling

Financial Times ^ | August 19 2003 | Lydia Adetunji

[knighthawk]

Eurozone inflation fell below the European Central Bank's 2 per cent threshold in July, official statistics showed on Tuesday.

Eurostat, the statistical arm of the European Union, said the annual rate of inflation fell to 1.9 per cent compared to 2 per cent in June. That was prompted by a 0.2 per cent drop in prices, the largest monthly fall in two years.

Declines in the cost of clothing - down a monthly 5.5 per cent, and food, which was 0.3 per cent lower, were particularly marked. The strongest price rises were seen in the hotels and restaurants sector - up 1 per cent on the month.

Core inflation, which excludes energy and unprocessed food costs, fell to 1.9 per cent - against 2 per cent in June - as prices declined 0.2 per cent.

The data comes hard on the heels of news that Germany, Italy and the Netherlands slipped into recession in the second quarter of this year, and growth was flat. Last week, the European Commission warned the eurozone risked further stagnation in the third quarter in spite of some evidence of economic revival.

That weakness was confirmed by separate data released by Eurostat on Tuesday. Industrial production in the eurozone fell by 0.1 per cent in June compared to March. That was 1.6 per cent lower than a year earlier, and worse than most economists had predicted.

However, energy output increased by a sharp 2.7 per cent in June, performing strongly in comparison to areas such as capital goods, down 1.3 per cent on the month.

The highest annual rates of inflation were recorded in Ireland, with 3.9 per cent, Greece, with 3.5 per cent, and Spain, Italy and Portugal, which all saw rates of 2.9 per cent.

In contrast, the lowest annual inflation rates were seen in Germany, with 0.8 per cent and Austria and Finland, where the rate was 1 per cent.

[knighthawk]

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