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Friday, 17 August, 2001, 10:51 GMT 11:51 UK
European inflation falls
Shopping bags with euro logo
Eurozone consumer prices fell in July pushing the region's annual inflation rate down to 2.8% from 3.0% in June, the EU's Eurostat statistics agency said on Friday.

The secondly straight monthly fall was in line with expectations and moves the EU-harmonised inflation figure closer to the European Central Bank's (ECB) target of 2.0%

Inflation figures from Italy, France and Germany earlier this month confirmed the falling trend in July, which was helped by a strengthening of the euro on currency markets and a slowdown in oil prices.

The 0.1% fall in inflation has raised hopes that the ECB will cut rates on 30 August, in its first meeting after the summer recess.

Inflationary pressures have been cited by the ECB as a prime reason for not cutting interest rates.

Consumer price check

French consumer prices fell 0.2% in July, giving an unchanged annual inflation rate of 2.2% on a EU-harmonised basis.

In Germany, which accounts for about one third of eurozone output, July EU-harmonised inflation was 2.6%, against 3.1% in June.

Italian inflation is also beginning to ease after holding at four-and-a-half year highs for the past eight months.

Figures from national statistics agency ISTAT on Friday showed consumer prices rose 0.1% month-on-month in July for an annual rate of 2.9%, down from 3.0%.

On a EU-harmonised basis, however, Italian inflation appears to be slowing more rapidly with a 0.1% rise for the month giving a 2.8% total for the year to July.

Interest rate cuts

In light of these figures and data released on Thursday showing the German economy was at a standstill, analysts are expecting an ECB rate cut next month.

The ECB has not changed interest rates since a quarter-point cut to 4.5% on 10 May, despite pleas from politicians and businesspeople to reduce the cost of borrowing as the global economy slows.

In Britain, which is not part of the eurozone, inflation also fell sharply in July, reinforcing economists' expectations of another interest rate cut by the Bank of England before the end of the year.

The Office for National Statistics said on Tuesday inflation fell 0.6% in July to be up 1.6% up on the year, its weakest annual rate since November 1999.

France output

Meanwhile, French industrial output pushed higher in June for the second month running, indicating the eurozone's second largest economy was in better shape than many had imagined.

French statistics office INSEE said on Friday overall industrial production, which excludes construction, increased 0.3% in June to register 2.0% growth over the year.

INSEE also revised upwards its May figures by 0.2% to 0.5%.

Many analysts had expected a decline in June, after output fell sharply in March and April.

INSEE also said employment growth in France slowed in the second quarter of the year, rising 0.4% against 0.8% in the first quarter, but even this slip was less than expected.

Sharda Dean, Merrill Lynch
"I do think the ECB will cut rates"
See also:

16 Aug 01 | Business
German economy grinds to a halt
08 Aug 01 | Business
German inflation falls
18 Jul 01 | Business
Eurozone inflation dips
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