Euro zone inflation slows more than expected as energy prices ease

BRUSSELS (Reuters) – Euro zone inflation slowed in December more than markets had forecast, held back by a sharp slowdown in energy prices, while core indicators remained stable, an official flash estimate showed on Friday.

The European Union’s statistics agency Eurostat estimated that prices in the 19-country currency bloc rose 1.6 percent in December on the year, slowing from 1.9 percent in November.

The slowdown was sharper than expected by a Reuters poll of economists that pointed to a 1.8 percent inflation in December.

The unexpected fall brings inflation below the European Central Bank target of a rate below, but close to 2.0 percent.

However, the core indicator watched closely by the ECB for its monetary policy decisions, which excludes volatile energy and food prices was stable at 1.1 percent in December, and in line with market expectations.

A narrower indicator that excludes energy, food, alcohol and tobacco was also stable at 1.0 percent, matching forecasts.

Inflation slowed mostly because of easing energy prices which rose 5.5 percent year-on-year in December after a 9.1 percent rise in November.

The ECB’s interest rates are set to remain at low levels as long as needed to bring inflation back to its target, ECB policymaker Benoit Coeure said on Friday, before the inflation figures were released.

Eurostat’s flash estimate does not include a monthly calculation.

In a separate release, Eurostat said industrial producer prices dropped in November by 0.3 percent in the euro zone on the month, more than the 0.2 percent fall forecast by economists polled by Reuters.

The drop followed a 0.8 percent increase of prices in October.

On the year, prices went up by 4.0 percent in the euro zone in November, Eurostat said.

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