Euro zone inflation is expected to remain steady at 1.7 per cent in October, well below the European Central Bank's ceiling for the second consecutive month, a Reuters weekly poll shows.
But economists said the risk was that inflation could come in slightly higher than forecast following stronger than expected figures from Germany, the euro zone's biggest economy.
In any case, tame inflation thanks mainly to lower energy prices and favourable base effects will not change widespread expectations that the ECB will raise interest rates again in December. The survey of 43 economists showed the flash estimate for euro zone inflation, due on Tuesday October 31st, was it to be unchanged from last month at 1.7 per cent.
Inflation was last at this level in March 2004. A move below the ECB's two percent target ceiling comes as oil prices have fallen from highs of $78 a barrel in July to around $61 at present.
This compared with a strong base in the same month last year when energy prices were rising sharply. "Inflation is very likely to go higher in November and December... They (the ECB) will increase rates in December and they will keep a tightening bias," said Luigi Speranza at BNP Paribas.
He forecast inflation to hold at 1.7 per cent, with interest rates peaking at 3.5 percent come the end of the year. A separate Reuters poll of 70 economists this week showed rates rising to 3.5 per cent in December, with a slim majority seeing rates at 3.75 per cent by the middle of 2007.
Mr Speranza highlighted the fact that some prices of goods have already risen in Germany in anticipation of a VAT hike in January. This would be key in pushing inflation higher in coming months, he added.
German inflation unexpectedly accelerated in October to 1.2 per cent against expectations of just 0.9 per cent, suggesting euro zone inflation may be even stronger than some have predicted this month. However, some economists have already factored this in to their forecasts.
