Eurozone inflation rate up at 0.6 percent in Nov

AP News
Posted: Nov 30, 2009 6:33 AM

Consumer prices in the 16 countries that use the euro rose by 0.6 percent in the year to November, the first annual increase since April, official figures showed Monday.

The EU's statistics office Eurostat did not provide any reasons behind the estimated increase from October's 0.1 percent fall. More details will emerge in December, when Eurostat publishes a more complete picture of inflation during the month.

Still, November's inflation figure was the first positive rate since the spring. From May, when annual inflation was flat, prices have fallen _ by as much as 0.7 percent in July _ as deflationary pressures dominated during Europe's worst recession since World War II.

A slump in energy prices from last year's peaks was also to blame _ since July 2008, a barrel of oil collapsed from its all-time high of nearly $150 to around $30 earlier this year.

A return to a positive inflation rate had been anticipated in the markets and by policymakers as the recession in the eurozone ended and last year's sharp falls in energy costs dropped out of the annual comparison.

However, the increase was bigger than anticipated _ the consensus in the markets was for a 0.4 percent inflation rate.

Neil Mackinnon, global strategist at VTB Capital, said the inflation figures are likely to raise an eyebrow or two at the European Central Bank, which meets this Thursday. However, he said underlying concerns about the pace of the economic recovery in the eurozone will likely still be the dominant topic of debate in the governing council's meeting.

"The recovery is not well-established," he said, noting problems in Spain and Greece in particular.

Few economists expect inflation to rise too far _ the European Central Bank's mandate is to set policy to achieve an inflation rate of just below 2 percent.

Ben May, European economist at Capital Economics, said inflation could well start to fall again in coming months as a result of the huge amount of spare capacity in the economy after the savage recession.

"Accordingly, while the ECB might signal the start of an unwinding of its unconventional policy measures on Thursday, interest rates will remain at their current low level for the foreseeable future," said May.

The ECB's main interest rate is now at 1 percent, a record low for the central bank.