Eurozone inflation was lower than estimated in January, data showed on Wednesday, supporting market expectations that price growth will continue slowing as the economy contracts and possibly paving the way for an ECB rate cut later this year. The European Union's statistics office Eurostat said consumer prices in the 17 countries using the euro fell 0.8 percent in January against December for a year-on-year rise of 2.6 percent - a downward revision from the first estimate of 2.7 percent published on February 1.
But oil prices that hit record highs in euro terms this month could slow inflation's downward trend in the coming months, even as the 17-nation bloc heads into recession, making an immediate interest rate cut less likely. The European Central Bank (ECB) aims to keep inflation below, but close to 2 percent over the medium term. Some economists believe the bank may consider cutting interest rates from the current 1 percent to support the flagging economy, but the oil price will play a central role in consumer price trends.
The ECB's move on Wednesday to pump 530 billion euros ($711 billion) into the euro zone's troubled financial system for the second time in as many months could also mean a period of calm in terms of policy. The European Commission expects the euro zone's economic output to shrink 0.3 percent in 2012, the second recession in just three years for the currency area. Economists polled by Reuters see a return to growth in 2013.
The monthly price fall was mainly due to seasonal reductions in the prices of clothes and package holidays, Eurostat said. In year-on-year terms, the inflation rate was underpinned mainly by high prices of fuel, which added 0.33 percentage points to the final figure, followed 0.14 percentage points from heating oil and another 0.14 points from gas. Overall energy prices, boosted by tensions over oil-producer Iran's nuclear programme, jumped 2.6 percent in January against December for a 9.2 percent year-on-year increase.