Euro notes are seen at the Belgian Central Bank in Brussels October 26, 2011. (THIERRY ROGE/REUTERS)

Euro zone inflation a headache for ECB

BRUSSELS — Reuters

Euro zone inflation held steady at 3.0 per cent for a second month in October, the EU said on Wednesday, as oil prices pushed up the cost of living and complicated the European Central Bank’s role in dealing with the bloc’s stagnating economy.

Now at a three-year high, consumer prices in the 17-nation currency area rose 0.3 per cent in October on a month-on-month basis to reach the 3.0-per-cent level on an annual basis, the European Union’s statistics office Eurostat said.

Both figures were in line with consensus figures from a Reuters poll of economists.

Inflation in October was above the ECB’s target of close to, but under 2 per cent. Many economists expect new ECB president Mario Draghi to repeat this month’s 25-basis point interest rate cut to 1.25 per cent again in December to boost the euro zone economy.

European Commission President Jose Manuel Barroso warned on Wednesday that the euro zone’s two-year economic recovery had run out of steam and said growth would be low – at best – while unemployment would remain at about 10 per cent for the next two years.

With Brent crude at over $110 a barrel, supported by growing supply concerns and tensions over Iran’s nuclear program, energy costs remain high in Europe, however.

Excluding energy, consumer inflation in the euro zone was 2.0 per cent in October, much more in line with the ECB’s goal, but some economists do not expect higher oil prices to abate until March.

Transport price inflation was 5.8 per cent in October, the highest in the euro area index, followed by alcohol and tobacco at 4.4 per cent on an annual basis.

On a country-by-country basis, consumer prices rose 3.4 per cent in Belgium and by 3.0 per cent in Spain in October versus the same month a year ago. Price inflation was 2.5 per cent in France and 3.8 per cent in Italy, where the government raised value added taxes to convince markets it can service its debts.