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Euro-Region Inflation Unexpectedly Slows as Economy Weakens

Euro-area inflation unexpectedly slowed in January as the economy cooled and governments cut spending across the 17-nation currency region.

The inflation rate in the euro area dropped to 2.6 percent from 2.7 percent in the previous month, the European Union’s statistics office in Luxembourg said today. It had initially estimated January’s inflation rate at 2.7 percent. Before today’s revision, economists forecast February inflation, due tomorrow, to slow to 2.6 percent, according to the median of 35 estimates in a Bloomberg News survey.

European companies are struggling to pass on higher costs as budget cuts undermine consumer sentiment just as global export demand weakens. Still, while the European Commission predicts that the region’s economy will shrink this year, European Central Bank President Mario Draghi has said the situation “seems to be stabilizing.”

Consumer prices dropped 0.8 percent from December, the statistics office said. Inflation slowed in 16 out of 27 EU member states, accelerated in nine and remained steady in two. Euro-region core inflation, excluding volatile costs, slowed to 1.5 percent from 1.6 percent in December.

Cost Pressures

Energy costs rose 9.2 percent in January from a year earlier, down from a 9.7 percent gain in the previous month, today’s report showed. Prices of clothes rose 0.9 percent.

Adding to signs of easing cost pressures across the region, producer-price inflation probably slowed to 3.5 percent in January from 4.3 percent in the previous month, a Bloomberg survey shows. Euro-region unemployment may have held at 10.4 percent in January, according to a separate survey.

The ECB, which aims to keep inflation just below 2 percent, will hold its next monetary assessment on March 8. It will publish its latest inflation projections on the same day.

“The euro area has entered into a mild recession,” EU Economic and Monetary Affairs Commissioner Olli Rehn said at a briefing on Feb. 23. “Prospects have worsened and risks to the growth outlook remain but there are signs of stabilization at the same time, especially in the more recent period.”

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