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Euro-Area Inflation Slows More Than Forecast on Energy, Food

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Inflation in Germany Was Unchanged in September
The cost of food, alcohol and tobacco increased 2.6 percent after a 3.2 percent gain a month earlier. Photographer: Krisztian Bocsi/Bloomberg

Sept. 30 (Bloomberg) -- Euro-area inflation slowed more than economists forecast in September, led by falling energy prices, and remained below the European Central Bank’s 2 percent ceiling for an eighth month.

Consumer prices rose an annual 1.1 percent after a 1.3 percent increase in August, the European Union’s statistics office in Luxembourg said in a preliminary estimate today. That’s the lowest level since February 2010. The median forecast in a Bloomberg News survey of 34 economists was for 1.2 percent growth.

The ECB forecasts that inflation will average 1.5 percent this year and 1.3 percent in 2014. ECB President Mario Draghi reaffirmed his pledge last week to keep key interest rates low for an extended period of time “based on a subdued outlook for inflation” and “broad-based weakness” in the economy. The central bank is forecast to hold its benchmark rate at a record low 0.5 percent on Oct. 2, a separate Bloomberg survey shows.

“Against this backdrop, we would expect ECB President Draghi to reaffirm on Wednesday the ECB’s commitment to keep interest rates at record lows for an ‘extended period,’ while keeping the door to a further rate cut or a new LTRO wide open,” said Martin van Vliet, an economist at ING Bank NV in Amsterdam.

The euro erased gains against the dollar after the data were released, trading at $1.3495 at 11:45 a.m. in Brussels, down 0.2 percent on the day.

Core Inflation

Energy prices in the euro area fell 0.9 percent after a 0.3 percent decline in August, today’s report showed. The cost of food, alcohol and tobacco increased 2.6 percent after a 3.2 percent gain a month earlier. The core inflation rate, which excludes volatile food and energy costs, was 1 percent.

Inflation in Germany, Europe’s largest economy, was unchanged at 1.6 percent in September, data on Sept. 27 showed. The Bundesbank said last week that slowing inflation is helping to support an “extraordinarily good” consumer climate in Germany.

Euro-area economic confidence increased more than economists forecast this month to the most in two years. An index of services rose to the highest since June 2011, signaling a strengthening recovery.

Economists in a Bloomberg survey published this month forecast euro-area economic growth of 0.2 percent this quarter and next after 0.3 percent expansion in the three months through June.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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