3 January 2003, 14:25  European Inflation Rate Remains at 2.2 Percent in December

/www.bloomberg.com/ By Emma Vandore
Brussels, Jan. 3 (Bloomberg) -- Inflation in Europe was unchanged in December as companies held prices in check over the Christmas holidays to persuade shoppers to part with their money.
Consumer prices in the dozen nations sharing the euro rose 2.2 percent from a year ago, the same rate as in November, the European Union's statistics office said in an initial estimate.
Companies are struggling to persuade consumers, who are the most pessimistic in five years, to spend as unemployment increases. The European Commission, the EU's executive branch, said the economy may shrink this quarter. To stimulate growth, the European Central Bank cut borrowing costs for the first time in a year on Dec. 5.
``We're not planning to increase prices in the next six months,'' said Michel Denys, chief financial officer of Belgian carpet maker Associated Weavers International NV, whose clients include Allied Carpets Group Plc. It would be ``very difficult'' for customers to accept.
In Germany, which accounts for about a third of the euro economy, retailers are cutting prices as Germans say they plan to rein in spending and save more, an opinion poll said today.
Aldi Group, the country's top discounter, has lowered the price for one kilo of chicken legs by 9 percent to 1.99 euros ($2.06), the Bild Zeitung newspaper reported today. At competitor Edeka Zentrale AG, Melitta brand coffee costs 26 percent less than last year.
HVB Group, Germany's second-largest bank, doesn't rule out a recession in Europe's largest economy. Siemens AG, Metro Group, BASF AG were among 15 of 28 German companies surveyed by Bloomberg News that said they don't expect a global economic recovery anytime soon.
Shedding Jobs
``In coming months, the world economy will be restrained,'' said Hero Brahms, CFO of Linde AG, Germany's No. 1 forklift and industrial gases maker, as part of the survey.
Linde was one of nine companies -- including Commerzbank AG and Bayer AG -- that said they will shed jobs. At 8.4 percent, the unemployment rate in the 12 euro countries is at its highest in more than two years. This is denting consumer spending, which accounts for more than half of Europe's economy.
Today's estimate reflects the latest energy prices plus December inflation figures from Germany, Italy and Belgium. Eurostat will release final figures Jan. 22.
Oil prices, which account for about 9 percent of the consumer price index, are rising due to strikes in Venezuela, the world's fifth biggest oil producer, combined with tensions between Iraq, the fourth-biggest producer in the Organization of Petroleum Exporting Countries, and the U.S.
Since the ECB's last meeting, Brent crude oil for February settlement has risen $4.29, or 17 percent, to $29.80 a barrel on the International Petroleum Exchange in London.
`Trend is Down'
ECB council members from Bank of France Governor Jean-Claude Trichet to President Wim Duisenberg said they expect inflation to fall below the bank's 2 percent limit after rising early this year. For 27 of the last 31 months inflation has been above 2 percent.
``The trend is down, though the recent rise in energy prices is not helpful,'' said Elwin de Groot, an economist at Fortis Bank. ``The question is whether the falls will be enough for the ECB to start cutting interest rates even more. I have doubts about this.''
The ECB next meets Jan. 9 and investors think it won't pare rates now, futures trading suggests. The implied yield on the three- month Euribor contract maturing this month is 2.84 percent, compared with the current 3-month money market rate of 2.86 percent.

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