Oct. 30 (Bloomberg) -- European consumer prices fell for a fifth month in October after unemployment increased to the highest in more than a decade, curbing household spending and prompting retailers to offer discounts.

Prices in the 16-nation euro region declined 0.1 percent from a year earlier after falling 0.3 percent in September, the European Union statistics office in Luxembourg said today. The figure matched the median estimate from a Bloomberg survey of 31 economists. The jobless rate rose to 9.7 percent in September, the highest since January 1999, a separate report showed.

Even as Europe is starting to recover from the worst recession in 60 years, inflation will remain “very weak,” European Central Bank Governing Council member Guy Quaden said yesterday, making it easier for the ECB to keep interest rates at a record low for longer. Euro-area unemployment may rise to 11.7 percent in 2010, the International Monetary Fund forecasts.

“These inflation figures suggest there’s plenty of time for the ECB to start unwinding its unconventional measures,” said Martin van Vliet, senior economist at ING Bank in Amsterdam. “They can take a gradual approach.”

The Frankfurt-based central bank, which aims to keep inflation just under 2 percent, expects annual price growth to average about 0.4 percent this year and 1.2 percent in 2010. ECB President Jean-Claude Trichet said on Oct. 8 that inflation would turn positive again “in the coming months” and that inflation expectations are “anchored.”

‘Very Weak’

“It’s probable that in the coming months inflation will remain very weak and the economic recovery fragile,” Quaden said yesterday in Brussels. “Conclusions to draw for the monetary-policy stance seem very obvious.”

The ECB has held its benchmark rate at a record low of 1 percent since May and started buying covered bonds to stimulate lending. The bank’s next rate-setting meeting is on Nov. 5.

“Inflation is not going to get to a point where the ECB is going to start worrying about it,” said Colin Ellis, a European economist at Daiwa Securities in London, who doesn’t expect a rate increase before the end of next year. “Underlying pressures are still very weak.”

ECB council member Mario Draghi said yesterday that while European economies have stabilized, “we are less sure that a lasting recovery, which does not depend only on extraordinary economic policies, is actually under way.”

Too Early

European leaders said it is too early to withdraw emergency measures aimed at tackling the recession, according to a draft of conclusions at an EU summit in Brussels that ends today.

“The incipient recovery needs close monitoring and the supporting policies should not be withdrawn until the recovery is fully secured,” the draft said.

October was the first month this year that crude-oil prices posted an annual gain, rising 21 percent from a year earlier. At the same time, the euro has appreciated 15 percent against the dollar in the last year, helping to hold down prices by making imported goods cheaper. The European currency traded at $1.4848 at 10:52 a.m. in London, up 0.2 percent on the day.

“You could argue that euro strength means we have to wait another month for inflation to move out of negative territory,” van Vliet said.

Unemployment in the euro region rose for a 15th month, with the highest rates in Spain, with 19.3 percent, and Ireland, at 13 percent. The rate in France rose to 10 percent while in Germany it held steady at 7.6 percent, the statistics office said in today’s report.

Jobless Lines

As jobless lines lengthen, businesses including Carrefour SA, Europe’s biggest retailer, are cutting prices to spur demand. Food retailer Delhaize Belgium NV said on Sept. 9 that it would keep following price cuts on lower-tier private brands by rivals, and Royal Ahold NV, the Dutch retailer, also reduced prices this year. Spain’s dominant department-store chain, El Corte Ingles, offered discounts of as much as 20 percent on underwear and cosmetics this month.

Consumers expect the trend to continue, according to a report yesterday from the European Commission. An index of consumers’ price expectations over the next 12 months held near a record low in October. The same survey showed executive and consumer sentiment in the euro region increased to the highest since September 2008.

The inflation report released today is an initial estimate. The statistics office will publish a detailed breakdown of the consumer-price data, including core inflation, on Nov. 13.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

Last Updated: October 30, 2009 06:55 EDT