Tech & Biz

Europe Inflation Falls to 2.1%

by Jordan Yerman | November 28, 2008 at 06:29 am

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Inflation in Europe fell sharply to 2.1% in the biggest drop in nearly 20 years. Meanwhile, unemployment has shot up, with Spain hit the hardest of the Eurozone nations.

Further rate cuts are expected in the coming week. With the European economy expected to continue shrinking in the coming year, financial movers and shakers are scrambling to initiate some damage control.

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.

It added that unemployment rose to 7.7% last month, from an upwardly revised 7.6% in September. The biggest increase in unemployment was in Spain, where the jobless rate rose to 12.8%, from 12.1% in September.

Economists now expect the European Central Bank to slash rates by at least half a percentage point next week, which would leave rates standing at 2.75%. The ECB has so far cut rates twice by 50 basis points in October and November.

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.

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Uwe Paschen

at 06:44 on November 28th, 2008

It does sound catastrophic and yet I think that it may be levelled out and the damage be limited. Part of all those extremes is due to a panic reaction and consumers confidence in there economy. If the confidence can be restored and the hurdles removed then the damage will be minimal. However I think that the confidence can only be restored if the EU and the US clean house and make some major reforms as well as follow up with legal actions against some of the Banks and trading houses rather then bail outs.