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The Euro sculpture is seen in front of the European Central Bank in Frankfurt, central Germany, in this Nov. 30, 2005 file photo. (MICHAEL PROBST/AP)
The Euro sculpture is seen in front of the European Central Bank in Frankfurt, central Germany, in this Nov. 30, 2005 file photo. (MICHAEL PROBST/AP)

Euro zone inflation shows biggest monthly fall in January Add to ...

Euro zone consumer prices fell in January at their fastest ever pace on a monthly basis, dragged down by a slump in the cost of non-energy industrial goods, keeping annual inflation well below the European Central Bank’s target.

Inflation rate in the 18 countries sharing the euro dropped by 1.1 per cent in January when compared with December, keeping the annual inflation rate at 0.8 per cent for a second month in a row, the EU’s statistics office Eurostat said.

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The annual inflation rate was revised from 0.7 per cent, which Eurostat released in a flash estimate on January 31.

Economists polled by Reuters expected consumer price inflation to accelerate slightly to 0.9 per cent in January, a level that is still well below the ECB’s target of close to but below 2 per cent.

The annual rate was influenced by a 1.2 per cent decline in the highly volatile prices of energy, while the monthly decline was hit by a 3.9 per cent fall in prices of non-energy industrial goods and a 0.4 per cent drop in the price of services.

The ECB, which cut its key interest rate to a record low of 0.25 per cent in November, is expected to stay put until mid-2015 unless money market rates rise and the euro strengthens.

Although ECB President Mario Draghi said the central bank had not changed interest rates this month because of the need to have more information about the economic recovery, markets are still on alert for a move in March, when the updated inflation outlook is due.

In January, euro zone members Greece and Cyprus were stuck in deflation. Only three countries in the bloc, Estonia, Latvia and Slovakia, saw consumer prices rising month-on-month in January.

Italy, the euro zone’s third largest economy, showed a 2.1 per cent month-on-month decline, the biggest drop from among all euro zone members.

In Germany, Europe’s largest economy, consumer prices fell by 0.7 per cent on the month, keeping the annual inflation rate steady at 1.2 per cent, with both figures coming below expectations.

Eurostat will publish the euro zone’s February inflation flash estimate on Friday.

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