Eurozone Inflation Surges, Trade Deficit Narrows

2011-10-14 14:19:19

euroinflation-101411.jpgEurozone inflation surged to a 35-month high in September on higher energy prices adding to the dilemma of the central bank amid slowing recovery. But inflation would possibly head downwards going forward with weak economic activity limiting underlying price pressures.

Annual inflation accelerated strongly to 3 percent in September, the highest level since October 2008, from 2.5 percent in August, final data from Eurostat showed Friday. The figure matched the flash estimate issued on September 30.

Inflation has been staying above the target of 'below, but close to 2 percent' since December 2010. Monthly inflation was 0.8 percent in September.

Core inflation that excludes energy, food, alcohol and tobacco, quickened to 1.6 percent annually from 1.2 percent. The annual rate stayed above the expected 1.5 percent.

An annual increase of 12.4 percent in energy prices was the major reason behind the acceleration in inflation. Other energy related components like transport grew 5.9 percent. Food prices gained 2.8 percent and clothing climbed 2 percent.

Howard Archer, chief U.K. economist at IHS Global Insight, said he believes that ongoing weak Eurozone economic developments will prompt the European Central Bank to cut interest rates from 1.50 percent to 1.25 percent before the end of the year, and would certainly not rule out a move in November.

Elsewhere, Capital Economics economist Ben May observed that deflation, rather than inflation may be the ECB's biggest concern next year.

Meanwhile, a sharp rise in exports helped the trade deficit to narrow to a seasonally adjusted EUR 1 billion in August from EUR 3.7 billion in July, Eurostat said separately. Exports increased 4.7 percent, following last month's 2.1 percent rise. Imports were up 2.7 percent compared to 2.6 percent in July.

However, on an unadjusted basis, the trade balance revealed a deficit of EUR 3.4 billion during the month compared to EUR 2.5 billion surplus in July.