By Fergal O’Brien Nov. 28 (Bloomberg) -- Europe’s inflation rate fell by the most in almost two decades and unemployment increased, adding to pressure on the European Central Bank to continue cutting interest rates to battle the recession. Inflation in the euro area slowed to 2.1 percent in November from 3.2 percent in October, the European Union’s statistics office in Luxembourg said today. The drop is the biggest since at least 1991 and puts the inflation rate at the lowest in more than a year. The Frankfurt-based ECB has already cut its benchmark rate by 100 basis points in two reductions since early October, part of a wave of reductions by central banks around the globe as they combat the worst financial crisis since the Great Depression. The drop this month brings euro-area inflation close to the ECB limit of just under 2 percent, which it has exceeded every month since September 2007. It “gives the ECB more room to maneuver,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt, who expects a 75 basis-point reduction next week to 2.5 percent. “And the rate cut process will continue.” Economists had forecast that inflation would ease to 2.4 percent in November, based on the median of 34 estimates in a Bloomberg News survey. The statistics office will publish a breakdown of the inflation numbers next month. 15-Year Low A separate report today showed the euro-region unemployment rate rose to 7.7 percent in October from 7.6 percent in September, the highest level since January 2007. That follows data yesterday that showed European confidence in the economic outlook dropped to a 15-year low in November, while retail sales fell the most in at least five years. The euro remained lower against the dollar after today’s reports and was down 0.4 percent at $1.2859 as of 10:40 a.m. in London. European government bonds rose. The yield on Germany’s 10-year bund, Europe’s benchmark, declined 4 basis points to 3.23 percent, taking its drop in November to 66 basis points. ECB President Jean-Claude Trichet said in a newspaper interview this week that there may be “negative growth” next year. EU Monetary Affairs Commissioner Joaquin Almunia has also said he sees the euro-area economy shrinking in 2009. Oil Prices Oil prices have dropped by almost two-thirds since reaching a record close to $150 a barrel in July. Crude oil was at $53.08 today, down 22 percent this month alone. Investors expect the ECB to lower the benchmark rate by at least 75 basis points at a Dec. 4 meeting from the current 3.25 percent, Eonia forward contracts show. Economists at Fortis Bank and Bank of America all expect to see the ECB reduce the rate by 75 basis points to 2.5 percent. A 75 basis-point reduction would take the ECB rate to the lowest since May 2006. The ECB has never cut its key rate by more than 50 basis points since it was founded in 1999 and some council members indicated that they don’t favor larger rate cuts. Austria’s Ewald Nowotny said this week that the ECB should keep some “firepower” in reserve. Data point “to a further deterioration in economic activity in late 2008,” said Gilles Moec, an economist at Bank of America in London. “Since inflation is also receding faster than anticipated, there is a clear case for a ‘higher-than-usual rate cut’ on Dec. 4 by the ECB.” To contact the reporter on this story: Fergal O’Brien in Dublin at fobrien@bloomberg.net.

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