Consumer price inflation continued to slow across the 15-nation euro zone last month, sending annual CPI below the European Central Bank's target rate of near but just below 2% for the first time since August 2007, according to a preliminary estimate by the statistical agency Eurostat.
Annual consumer inflation slowed to a 1.6% pace in December, down from 2.1% in November. The reading marks the latest in a series of declines that have seen inflation slow from a peak of 4% in June and July.
The move below the ECB's target outpaces central bank staff projections which called for a return to target in mid-2009.
Slowing inflation pressure is seen giving the ECB more room to continue cutting interest rates.
Earlier, the Markit euro-zone composite purchasing managers index for December fell to 38.2, slightly below a preliminary estimate of 38.3 and down from the previous all-time low of 38.9 posted in November.
The figure -- the seventh monthly decline -- signals the steepest contraction in the private-sector economy since the survey began in 1998, Markit said.
Taken together, the CPI data and the PMI survey underline expectations the ECB will cut interest rates to zero this year, said Ben May, European economist at Capital Economics.
Since October, the ECB has cut its key interest rate from 4.25% to 2.5%. The ECB's rate-setting Governing Council meets on Jan. 15.
The euro extended losses following the data and remained down 1.7% versus the dollar at $1.3394 in recent action.
