By Jan Strupczewski
BRUSSELS Jan 4 Euro zone inflation eased
from last year's peaks of 3.0 percent in December, the first
sign of a fall in price growth this year that analysts expect
will create room for more interest rate cuts to help the
The European Union's Statistics Office (Eurostat) estimated
that consumer prices in the 17 countries sharing the euro rose
2.8 percent year-on-year in December, down from 3.0 percent
year-on-year rises in November, October and September.
No detailed break-down of the numbers is available with the
Eurostat estimate, but economists said the slower price growth
was likely a result of lower energy prices.
"Looking ahead, further falls in inflation are likely," said
Ben May, economist at Capital Economics.
"Assuming that the oil price does not rise again, we see
this component knocking about 1 percent off the headline rate in
2012. Food inflation should also slow as the effects of past
rises in agricultural commodity prices fade," he said.
"We expect the headline inflation rate to plunge well below
the ECB's 2 percent price stability ceiling by the middle of the
year," he said.
The European Central Bank cut its main interest rate back to
a record low of 1 percent on Dec. 8 to try to boost the economy
as inflation pressures subside. Economists believe that with
inflation falling, more interest rate cuts were likely soon.
"The favourable medium-term inflation outlook is a green
light for further ECB rate cuts over the coming months. We
expect the refinancing rate to reach a low of 0.5 percent," said
Nick Kounis, economists at ABN Amro bank.
Cheaper credit could help boost growth in the euro zone,
where the economy expanded just 0.2 percent in the third quarter
and economists expect that it contracted in the fourth.
They also think it might contract in the first three months
of 2012, which would send the bloc back into recession after a
two-year recovery from the worst global financial crisis since
"Consequently, we expect the ECB to respond to likely euro
zone GDP contraction in the fourth quarter of 2011 and the early
months of 2012 by cutting interest rates further," said Howard
Archer, economist at IHS Global Insight.
"Specifically, we forecast the ECB to trim interest rates by
a further 25 basis points from 1.00 percent to 0.75 percent in
the first quarter although we do not expect another cut as soon
as the 12 January policy meeting," he said.