EUproducer inflation slows down

Bloomberg

Factory-gate prices in the euro region rose 1.8 percent from a year earlier after a 3.3 percent increase in November, the European Union’s statistics office in Luxembourg said yesterday. That is the slowest inflation at the producer level since August 2007.

With oil prices down more than two-thirds since a July peak, slowing inflation is providing the European Central Bank more scope to further cut rates to spur lending and boost the region’s contracting economy. The ECB, which has more than halved its key rate since early October to match a record-low 2 percent, last month signaled another reduction is likely in March.

There is "sharply declining inflation in the euro zone," said Carsten Brzeski, an economist at ING Groep in Brussels. This "provides more room for the ECB to cut rates in March."

Companies forced to lay off

The global financial crisis is derailing purchases of cars and factory machinery and forcing companies to reduce output and cut jobs. The International Monetary Fund predicts the 16-nation euro-area economy will contract 2 percent this year.