Euro zone inflation drops to 3.5-year low in September as expected

BRUSSELS Wed Oct 16, 2013 5:08am EDT

BRUSSELS (Reuters) - Euro zone inflation fell as expected in September to its lowest in 3.5 years as inflationary pressures continued to ease amid a weak economic recovery and shy domestic demand.

The rate of consumer price inflation in the 17 countries using the euro fell to 1.1 percent year-on-year in September, its lowest since February 2010 when it stood at 0.8 percent, the EU's statistics office Eurostat said on Wednesday.

The reading was down from 1.3 percent in August and was well below the European Central Bank's (ECB) official target of an inflation rate of close to but below 2 percent.

Prices rose 0.5 percent from August, as a 0.4 percent drop in costs of food, alcohol and tobacco products and a 0.9 percent decline in prices of services were offset by a 3.4 percent jump in prices of non-energy industrial goods.

Volatile prices of energy were up by 0.5 percent in September on the month.

ECB Executive Board member Peter Praet said on Tuesday inflation pressures in the euro zone remain subdued in medium term, including 2015.

The low inflation environment allows the ECB to keep an ultra-loose policy stance with the main refinancing rate at a record low of 0.5 percent and the ECB said repeatedly it stood ready to react if the economy needs a further policy boost.

With inflationary pressures low, economic optimism in the euro zone brightened for the fifth month running in September and jumped to a 2-year high on the back on improving confidence across all sectors and confirmed the recovery was underway.

In a separate data release the Eurostat said the bloc's foreign trade surplus grew to 7.1 billion euros in August from 4.6 billion euro surplus in August 2012, as exports fell by only 5 percent while imports were down 7 percent year-on-year.

A brightening export picture could be seen in the euro zone's southern periphery countries like Greece and Portugal, confirming their economies were re-gaining competitiveness thanks to ongoing structural adjustment.

Exports in Greece, which hopes to return to growth next year after a 6-year recession, were up 6 percent in the first seven months. Portugal, due to exit an international aid program next year, saw exports up by 4 percent in January-July.

(Reporting by Martin Santa)

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