Portugal will perform well in the international property market in the next year, it has been predicted.
News Article Date: Wednesday 21st of October 2009
FRANKFURT -- Underlying euro-zone inflation should edge down in coming months even if overall prices rise slightly, the European Central Bank said Thursday, signaling that it likely will hold interest rates at very low levels for some time.
The optimistic forecast was supported by fresh data showing prices edging down last month among the 16 countries that use the euro currency.
ECB officials also emphasized that while the bloc's economies appear to be stabilizing, "the recovery is expected to remain rather uneven."
The ECB departed from its longstanding focus on overall inflation, noting in its October bulletin that core inflation, which excludes volatile food and energy prices, "is particularly insightful" now in analyzing the forces driving prices. The ECB has a mandate to keep overall inflation below -- but close to -- 2% over the medium term.
Consumer prices fell 0.3% in September from the year-earlier month, according to data Thursday from the European Union's statistics agency. Prices should tick up in coming months in response to higher commodity prices, although core inflation "has been on a downward path since mid-2008 and shows no sign of reversing in the short term," the ECB said. Core inflation in the euro zone fell to 1.2% last month from 1.3% in August.
With so much slack in the economy and factories running well below full capacity "even if there is an economic recovery, it is still going to take time" for core inflation to stop declining, said Marta Bastoni, economist at J.P. Morgan Chase Bank. With inflation not a primary concern, the ECB should keep its key lending rate unchanged at 1% until the end of 2010, she said.
Lower consumer prices were evident last month in countries hard hit by housing slumps and the global recession, such as Ireland, which posted a 3% drop from a year ago and Spain, where prices fell 1%. Consumer prices declined a more modest 0.5% in Germany and 0.4% in France.
Meanwhile, two of the euro zone's three largest economies issued cautiously upbeat forecasts. The Bank of Italy said it expects gross domestic product to expand 1%, on a quarterly basis, during the third quarter. Italy's economy has contracted for five consecutive quarters.
Meanwhile, Germany's leading economic institutes said they expect the euro zone's largest economy to expand 1.2% next year after contracting 5% this year. Both estimates were improvements from previous forecasts issued in April.
Commenting on recent positive economic data, ECB President Jean-Claude Trichet said Thursday that the "good times" haven't returned yet. "We have to continue to be extremely alert," he said, adding that current rate levels are "appropriate" and "the time isn't right" for an exit now from the ECB's expansionary monetary policy.
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