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Inflation Dampens Euro Rate Cut Hope

Friday, August 31 11:31:18

Consumer prices in the 17 countries sharing the euro rose 2.6 percent year-on-year, just above forecasts and accelerating from 2.4 percent in July, the European Union's statistics office estimated. Economists at Barclays believe rising fuel prices is behind the inflation increase. Inflation had fallen from 3 percent in November 2011 to stabilise at 2.4 percent in May, June and July as the euro zone economy slowed because of the debt crisis. The ECB, which targets inflation below but close to 2 percent, had expected the rate to fall below 2 percent by the end of the year. The central bank is also looking for ways to boost economic growth in a stagnating euro zone and may cut its main refinancing rate from 0.75 percent at next week's policy meeting. Economists in a Reuters poll published on Wednesday were evenly divided on whether there would be a cut, while an October rate cut instead was viewed as equally likely. A full breakdown of the August inflation estimate and the monthly rate will be published by Eurostat on Sept 14. Euro zone gross domestic product was unchanged quarter-on-quarter in the first three months of the year and contracted 0.2 percent in the second quarter. Evidence of the sharp deceleration of the economy was seen in the unemployment rate, which was at new euro zone highs of 11.3 percent in July, unchanged from an upwardly revised June. Rising unemployment is likely to limit inflationary pressures in coming months, in what the ECB might see as an argument in favour of a rate cut. (C Reuters)