World Economic

Italy’s inflation rate fell to the lowest in 14 months as energy costs plummeted and the recession made it harder for retailers to raise prices.

Consumer prices based on European Union measurements rose 2.3 percent from a year earlier, compared with 2.7 percent in November, the Rome-based national statistics office said today. The median forecast in a Bloomberg survey of 20 economists was 2.4 percent. From a month earlier, prices dropped 0.2 percent.

Italy, the third-biggest economy in the euro area, last year helped drag the region into its first recession since the birth of the single currency in 1999. European Central Bank Vice President Lucas Papademos said yesterday that further interest- rate cuts may be necessary from the current 2.5 percent if price pressures keep receding.

Slowing inflation “is mainly due to lower oil prices” Luigi Speranza, an economist at BNP Paribas in London, said before the report. “However, we can now see underlying pressure on core inflation which filters out volatile components. Rates will continue to fall.”

Eonia forward contracts show that investors bet the European Central Bank will lower its benchmark interest rate to at least 2 percent this month.

If price stability is threatened by weakening inflation “an easing of monetary policy could be warranted in order to keep inflation over the medium term at levels close to but below 2 percent,” Papademos said in a speech at a conference of economists in San Francisco.

Inflation Outlook

The cost of everything from fresh food to transportation may decline further in coming months after the price of oil dropped more than 70 percent from a July peak of $147 fast payday loan no faxing.27 a barrel. The inflation rate in Germany, Europe’s largest economy, declined to 1.1 percent, the lowest level in more than two years, a Dec. 30 report showed.

Italy’s inflation rate, based on domestic statistical methods, slowed to 2.2 percent from 2.7 percent, today’s report showed. Prices fell 0.1 percent from November.

The cost of transportation, which makes up more than 15 percent of the non-EU harmonized index, fell 1.1 percent from the previous month. The cost of housing, water and electricity fell 0.6 percent in the month. Food and beverage prices gained 0.1 percent, the report showed.

Italian retail sales contracted for a 22nd month in December as the worst recession since 1992 eroded consumer confidence and spending. A seasonally adjusted index of sales, based on a survey of 440 executives prepared by Markit Economics for Bloomberg LP, rose to 31.9 from 28.5 in November, remaining below the limit of 50 that indicates a contraction.

Retailers are counting on promotions and reduced prices to raise sales in the January discount period after weak spending in the third-quarter. They will take in an estimated 7 billion euros, about 20 percent of the yearly revenue, during the biannual sales started on Jan. 2, retail association Confcommercio said on Dec. 29.

Today’s release was a preliminary report. The final figures, including the breakdown of the EU-harmonized index, will be released on Jan. 15.

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