December: +0.3% m/m, +2.7% y/y (revised from +2.8%)
November: +0.1% m/m, +3.0% y/y
October: +0.3% m/m, +3.0% y/y
September: +0.8% m/m, +3.0% y/y
August: +0.2% m/m, +2.5% y/y
—

FRANKFURT (MNI) – Consumer price inflation in the Eurozone
decelerated more than expected on the year in December, while the core
rate remained unchanged for the fourth consecutive month, Eurostat
reported on Tuesday.

After slowing in November, prices rose 0.3% on the month, dampening
the annual rate to +2.7%, its slowest pace since August. For the full
year, average inflation accelerated to +2.7% from +1.6% in 2010.

Energy prices were down 0.1% between November and December,
reducing the annual rate to 9.7%. Food was 0.3% more expensive on the
month, mirroring the gain in alcohol and tobacco prices, slowing the
respective annual increases to 3.0% and 3.8%.

The core rate excluding the above components held firm at 1.6% y/y,
as expected. Excluding energy and unprocessed foods, the European
Central Bank’s preferred measure of core inflation was also unchanged,
holding at +2.0% over the same period.

As in previous months, fuels for transport, heating oil, gas and
electricity contributed the most to the annual figure, adding nearly 0.7
percentage point to the headline rate.

Among the larger Eurozone economies, consumer price inflation in
Germany rose 0.7% on the month to give an annual figure of +2.3%. French
prices were up 0.4% and 2.7% on the month and year, respectively.

In Italy, consumer prices increased 0.3%, leaving annual inflation
unchanged at +3.7%. Spanish prices were unchanged m/m to give an +2.4%
annual rate.

December’s PMI poll showed pipeline pressures easing further, as
cheaper inputs in manufacturing partially offset costlier services
inputs. Firms reported lower selling prices for the third time in four
months on the back of weak demand and strong competition.

Still, selling price expectations remained above average in most
business sectors in December, a European Commission survey showed.
Manufacturers, service providers and construction firms all revised up
their price outlook. Consumers’ inflation worries rose to an eight-month
high.

Inflation is expected to remain above the ECB’s target for price
stability in the coming months before easing, as favourable base effects
and slowing economic growth take effect.

The ECB staff’s latest projections show annual Eurozone inflation
between +1.5% and +2.5% on average in 2012 and easing to +0.8% to +2.2%
in 2013. The central bank’s latest survey of professional forecasters
foresee inflation of +1.8% both this year and next after an average rate
of +2.6% last year.

“The Governing Council continues to view the risks to the
medium-term outlook for price developments as broadly balanced,” ECB
President Mario Draghi said last week.

“On the upside, the main risks relate to further increases in
indirect taxes and administered prices, owing to the need for fiscal
consolidation in the coming years, and possible increases in commodity
prices,” he added. “The main downside risks relate to the impact of
weaker than expected growth in the euro area and globally.”

— Frankfurt bureau: +49 69 720 142; e-mail: frankfurt@marketnews.com —

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