European inflation slows to 2.1 percent

Bloomberg

Inflation in the euro area slowed to 2.1 percent in November from 3.2 percent in October, the European Union statistics office in Luxembourg said Friday. The drop is the biggest since at least 1991.

The Frankfurt-based ECB has already cut its benchmark rate by 100 basis points in two reductions since early October, part of a wave of cuts by central banks around the globe as they battle the worst financial crisis since the Great Depression. The drop this month brings euro-area inflation close to the ECB’s target of just under 2 percent, which it has exceeded every month since September 2007.

"The drop in inflation will give the doves on the ECB more ammunition to argue for a big cut" at next week’s rate-setting meeting, said Martin van Vliet, an economist at ING Group in Amsterdam. "There is a very compelling case for going by more than 50 basis points."

Economists forecast that inflation would ease to 2.4 percent in November, based on the median of 34 estimates in a Bloomberg News survey.

A separate report yesterday showed the unemployment rate rose to 7.7 percent in October from 7.6 percent in September.

That follows data Thursday that showed European confidence in the economic outlook dropped to a 15-year low in November, while retail sales fell the most in at least five years.

Data "points to a further deterioration in economic activity in late 2008," said Gilles Moec, an economist at Bank of America in London. "Since inflation is also receding faster than anticipated, there is a clear case for a ’higher-than-usual rate cut’ on Dec. 4 by the ECB."