Falling fuel and telecoms prices pulled euro zone inflation down to its lowest level in almost four years in October, data showed today. The figures flesh out the surprise drop that prompted the European Central Bank to cut interest rates to a record low last week. Consumer price inflation in the euro zone was 0.7% last month, the EU's statistics office Eurostat said, confirming its earlier estimate that is far below the ECB target of just under 2%. On an annual basis, falling fuel costs for heating and transport, as well as telecoms, had the biggest impact on the inflation rate, offsetting rises in electricity and rent. Heating oil fell by the most in October compared to the year earlier period, followed by fuels and then telecoms, Eurostat said. After Eurostat released its flash reading on October 31, the ECB cut its main refinancing rate on November 7 by 25 basis points to 0.25%, warning of the risk of "a prolonged period of low inflation" as the euro zone struggles to recover from recession. The inflation rate dropped below 1% for the first time since February 2010. Stripping out volatile energy and food and tobacco costs, inflation was 0.8% in October. Europe is yet to face a negative inflation rate or a Japanese-style deflationary spiral when falling prices weaken demand, leading to wage cuts and even lower prices. But consumer prices actually fell in October from September, by 0.1%, Eurostat said in its more detailed reading that laid out the pace of prices rises and falls across all sectors. Making the ECB's job all the harder, inflation varied widely across the euro zone, ranging from outright deflation in Ireland, Cyprus and Greece to inflation of 1.2% in Germany, 1.7% in Finland and 2.2% in Estonia, the highest annual rate in the bloc. France, Belgium and Slovakia registered inflation at same level as the euro zone's average rate of 0.7%.

Source