Eurozone inflation jumps to 3 percent in September

FRANKFURT, Germany (AP) ? Inflation jumped to a startling 3.0 percent in September in the 17 countries that use the euro, a surprise increase that makes it less likely the European Central Bank will cut interest rates next week to head off a possible recession.

The rate reported Friday from the European Union's statistics agency was the highest since October 2008 and represented a big increase from August's 2.5 percent. The scale of the rise was unexpected.

The ECB, the chief monetary authority for the euro countries, has come under pressure to cut interest rates soon to ward off mounting signs of recession in the eurozone economy. A waning global recovery and market turmoil from Europe's debt crisis are starting to weigh on growth.

Leading economic indicators have been falling to the point where some predict a downturn is imminent, after a weak 0.2 percent growth figure for the second quarter.

Separate figures Friday from the statistics office showed unemployment in the eurozone stuck at 10 percent in August.

A few economists have predicted a cut next week when the ECB's rate-setting council meets in Berlin. But the council's 23 members may want to see evidence that inflation is not a threat before they cut. September's rate, which is well above the ECB's mandate to keep inflation just below 2 percent, could mean a cut that soon is less likely.

"The latest eurozone inflation and unemployment numbers would appear to reduce the chance of an imminent ECB rate cut," said Ben May, European economist at Capital Economics.

Ahead of the release, some economists had said a technical change in the way statistics are kept for seasonal goods could have an unexpectedly big impact on the headline inflation rate. Some economists expected little or no change while others had predicted a figure as high as 2.9 percent.

The statistics office did not provide any details behind the surprisingly big increase. That will have to wait until the middle of next month when it publishes a more complete assessment.

However, German figures earlier this week showed inflation running at a higher than expected 2.6 percent on the back of higher oil prices and increases in the seasonal prices of clothing and shoes as merchants put out new fall and winter offerings.

Recession fears argue for cutting rates, since that stimulates growth by lowering borrowing costs for businesses.

The bank is also forecasting inflation to fall to 1.7 percent on average next year.

Economist Christoph Weil at Commerzbank said the slack economy meant inflation would fall and called the figure "no real reason for concern."

"As the eurozone edges towards recession, inflation pressure will ease significantly," he said.

Other recent inflation indicators, such as the EU survey of sales prices expectations, have been pointing down, and the recent slackening growth also bears down on price pressures. Last week Commerzbank changed its traffic-light inflation monitor to green, implying little risk of inflation.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2011-09-30-EU-Europe-Economy/id-439dd513381d479883a5915d934391a8

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