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Eurozone Reports Low Inflation - 2003-05-16

Inflation in the 12 nations that use the euro was very low in April.

Consumer prices rose by a smaller-than-expected rate of one-tenth of a percent in April, and at the same annual rate of 2.1 percent that had been earlier estimated by the EU statistics agency, Eurostat. The development comes as energy prices fell 2.9 percent from the previous month, the largest drop since the inflation index started to be calculated in 1995.

The high euro, which recently hit a four-year peak, reduces the cost of commodities like oil that are priced in dollars. So this puts a downward pressure on prices.

Earlier this week another report showed that the eurozone economy had stagnated in the first quarter, recording a zero growth rate. All these factors together reinforce expectations that the European Central Bank might cut interest rates, something it has resisted so far.

ECB Board member Eugenio Domingo Solans, who was in Luxembourg for a Eurostat meeting, says the inflation trend is encouraging.

"We expect inflation to reduce and to break this year the two percent level," he said. "So that would imply in increase in the disposable income for people. All these adjustments which are taking place, we expect that could lead to the start of the recovery at the end of the year."

The eurozone inflation rate has been above two percent for nine months. There have been wide differences in individual nations. Germany, which is Europe's largest economy, has one percent inflation in April while Italy reported three percent.