Falling energy prices kept euro zone inflation in negative territory in August, data showed today, in what is likely to keep European Central Bank interest rates steady despite a nascent economic recovery.
Consumer prices in the 16-country euro area increased 0.3 per cent on the month and dipped 0.2 per cent from a year earlier, European Union statistics office Eurostat said, confirming its year-on-year figure reported two weeks ago.
The numbers were in line with analysts' expectations.
It was the third straight month of annual falls in prices but officials say they see no danger of deflation, or a prolonged price decline coupled with consumers' expectations of further dips. In July, prices dropped by a record 0.7 per cent.
The European Central Bank and the European Commission have said consumer prices are likely to fall for a few months in mid-year because of record high oil and food costs a year before.
Energy prices fell 10.2 per cent year-on-year in August while core inflation, which excludes energy and food costs and is closely watched by the ECB, was 1.2 per cent in annual terms.
The European Commission forecast this week that euro zone inflation would be 0.4 per cent in 2009.
The ECB wants annual price gains to be just below 2 per cent over the medium term. The data could encourage the bank to keep its main interest rate at a record low 1.0 per cent for many more months, despite signs of economic recovery.
The Commission expects the euro zone's economy to start growing in the third and fourth quarters after a big contraction in the first half of 2009 as the worst economic crisis since World War Two led to factory closures and lay-offs.
Eurostat said transport fuels and heating oil had the biggest impact on the year-on-year inflation result, subtracting 0.67 percentage point and 0.35 percentage point respectively.
Prices in restaurants and cafes as well as tobacco costs had the biggest upward impact on inflation, of 0.15 and 0.14 percentage point respectively.
Reuters