30 September 2002, 08:59  European Inflation Rate Seen Rising to 2.2% in September

/www.bloomberg.com/
By Emma Vandore
Brussels, Sept. 30 (Bloomberg) -- Inflation in Europe probably accelerated to a five-month high in September as energy and food prices climbed, reducing the European Central Bank's scope to pare interest rates.
Consumer prices in the 12 nations sharing the euro rose 2.2 percent from a year ago, compared with 2.1 percent in August, according to the median forecast of 23 economists surveyed by Bloomberg News.
``Energy prices have played an important role in pushing up inflation,'' said Kelly Tonkin, an economist at Lehman Brothers Holdings Inc. in London. ``That's just one of the reasons making it hard for the ECB to cut rates.''
European growth will slide below 1 percent this year, the slowest pace since the 1993 recession, the European Commission forecasts. Retailers are struggling to raise prices as unemployment hovers near a two-year high.
Eurostat, the European Union's statistics office, will release its first estimate of September inflation at noon, Brussels time.
Societe Bic SA, the world's biggest maker of ball-point pens, said full-year sales will grow less than expected as consumers and companies opt for its less-expensive brands. Gucci Group NV said second-quarter profit fell 55 percent as sales of its signature products slowed.
Slack Demand
``Given the weakness in the European economy, inflation should be pretty much under control,'' said Otmar Lang, an economist at Deutsche Bank AG in Frankfurt. ``If the oil price does not explode, it should come down.''
For 23 of the last 27 months inflation has been above the ECB's 2 percent limit, making it difficult to lower borrowing costs to bolster a sluggish economy. Money supply growth was higher than expected in August and above the ECB's limit.
Today's estimate will reflect the latest energy prices plus September inflation figures from Germany, Italy and Belgium. Italy's inflation rose to 2.6 percent, the highest level in a year. The rate was unchanged at 1.1 percent in Germany and 1.3 percent in Belgium.
The 45 percent rise this year of oil prices, which account for about 9 percent of the consumer price index, has boosted inflation. Brent crude oil for November settlement last traded at $28.99, near a one-year high of $29.13 a week ago.
Interest Rates
German food prices have risen after floods ravaged the southeastern states of Germany, Europe's largest economy.
Still, the ECB doesn't expect the inflation rate to increase. ``The price prospects for the coming months point to a rate of around 2 percent in the euro area,'' President Wim Duisenberg said last week.
Investors are scaling back expectations of a rate cut by the year end, futures trading suggests. The implied yield on the three- month Euribor contract maturing in December is at 3.07 percent, compared with 3.03 percent on Tuesday.

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