Finance & Business World

European consumer prices fell for a fourth month in September as energy prices dropped and companies cut jobs and reduced costs to weather the global economic slump.

Prices in the 16-nation euro region declined 0.3 percent from a year earlier after falling 0.2 percent in August, the European Union statistics office in Luxembourg said today. The September drop matched an initial estimate released on Sept. 30.

Lower energy costs have helped to push down consumer prices just as companies are reducing spending to survive the worst recession in at least six decades. Job cuts have pushed Europe’s unemployment rate to a 10-year high. European Central Bank President Jean-Claude Trichet said on Oct. 8 that the economy will recover “at a gradual pace” with inflation seen turning positive “in the coming months.”

“Economic activity is unlikely to be strong enough to generate significant inflationary pressures for some considerable time,” said Howard Archer, chief European economist at IHS Global Insight in London. “There is a compelling case for the ECB to retain an accommodative stance for many months to come.”

Energy prices slid 11 percent in September from a year earlier, according to today’s report, while the transport industry showed a 3.7 percent drop. Housing prices declined 1.6 percent, while food dropped 1.3 percent in the year.

Core Inflation

The core inflation rate, which excludes volatile energy and food costs, fell to 1.2 percent in September from 1.3 percent in the previous month, the report showed. That was the lowest since February 2006.

The ECB expects euro-area inflation to average about 0.4 percent this year and around 1.2 percent in 2010. The Frankfurt- based central bank aims to keep inflation just below 2 percent over the medium term.

Companies may gain more leeway to pass on costs with the economy gathering strength. European confidence in the economic outlook increased to a one-year high last month and a gauge of euro-area manufacturing and services industries showed a stronger expansion than initially estimated.

Confidence in the world economy increased for a third month in October, a Bloomberg survey of users on six continents showed yesterday. The Bloomberg Professional Global Confidence Index rose to a record 61.7. In Germany, Europe’s largest economy, business sentiment is at a 12-month high.

Consumer-Electronics Maker

Royal Philips Electronics NV, Europe’s largest consumer- electronics maker, yesterday unexpectedly reported a profit for the latest quarter after the Amsterdam-based company eliminated jobs and lowered costs. Rome-based Bulgari SpA, the world’s third-largest jeweler, said on Oct. 9 that sales improved over the past three to four months.

The ECB has purchased covered bonds, provided banks with unlimited cash over 12 months and earlier this month kept its benchmark rate at a record low of 1 percent to stimulate lending. The central bank last month raised its economic forecasts to predict a contraction of around 4.1 percent this year and an expansion of about 0.2 percent in 2010.

With some of the region’s largest companies including Royal Dutch Shell Plc and Bayerische Motoren Werke AG cutting jobs, consumers may remain reluctant to boost spending, which could curb the recovery. The jobless rate is currently at 9.6 percent, the highest in a decade.

“Companies are still cutting costs and are not yet able to push through higher prices,” said Christoph Weil, an economist at Commerzbank AG in Frankfurt. “There’s no inflation pressure anytime soon.”

ECB council member Christian Noyer said on Oct. 13 that the “moment hasn’t arrived” for the ECB to start withdrawing unconventional measures. Trichet said earlier this month that it would be “premature today to think that the crisis has been overcome and conquered in a sustainable manner.”

The statistics office will publish an estimate for October consumer prices on Oct. 30.

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