European inflation probably held below ECB goal on oil decline

Consumer prices may have increased 1.7% from a year earlier, the same rate as in September, which was the lowest since March 2004, according to the median of 41 estimates in a Bloomberg News survey. A measure of Europeans' confidence in the economy probably climbed to a five-year high, a separate survey shows. “It's not enough to stop the ECB,” said Stephane Deo, chief European economist at UBS AG in London. “We're still in the middle of the cycle” and companies “are very healthy.” The central bank has signaled it's ready to raise its main lending rate for the sixth time in a year in December to head off inflation risks. The economy of the euro region is expanding at the fastest pace in six years and money-supply growth, which the ECB views as a gauge of future inflation, unexpectedly accelerated for a second month in September. That growth is stoking concern among central bankers even as the decline in crude prices helps bring down inflation. The price of oil has declined about 24% from a record $78.40 a barrel in July. Oil traded late yesterday at $58.70 a barrel. Eurostat, the Luxembourg-based statistics office for the 25- nation European Union, releases the inflation report at 11 a.m. At the same time, the European Commission publishes its monthly survey of business and consumer confidence. The Frankfurt-based central bank, which holds its next meeting on November 2, has raised its benchmark rate to 3.25% from a six-decade low of 2% in the past year as economic growth picked up, giving companies room to raise prices. Deutsche Lufthansa AG, Europe's second-biggest airline, raised its full-year profit forecast October 26, citing higher fares. Randstad Holding NV, the world's fourth-largest temporary- employment agency, said October 27 third-quarter profit rose 42%, boosted by business in the Netherlands and Germany. Europe's economy is set to expand 2.4% this year, the fastest pace since 2000, according to the International Monetary Fund's forecasts.

The IMF expects the US economy to grow 3.4% this year, while Japan's will expand 2.8%. The commission's gauge of economic confidence for October probably rose to 109.5 from 109.3 the previous month, according to the median estimate of 30 economists in a Bloomberg News survey. In France and Germany, which make up more than half the region's economy, business confidence unexpectedly rose this month, industry and government reports showed last week. Politicians are concerned that the ECB risks damaging the growth outlook with too many rate increases. Luxembourg Prime Minister and Finance Minister Jean-Claude Juncker warned the central bank against hampering the economic expansion with excessively high rates. “My assumption is that the bank in setting rates will also keep in mind the possible effects that a rate rise could have on economic growth,” Juncker, who also heads the committee of euro- region finance chiefs, told Belgium's L'Echo in an interview published October 28. The European Parliament passed a resolution last week telling the ECB that “any raising of interest rates should be undertaken with caution in order not to endanger growth.” ECB President Jean-Claude Trichet told the Parliament that “inflation risks remain on the upside.” ECB council members including Germany's Axel Weber suggest some policy makers support raising rates further next year. (Bloomberg)