Eurozone Inflation Falls To 3.6 Percent

Cooling prices offer little relief to a European economy suffering as consumers worry about rising unemployment and companies fear the banking meltdown.

BRUSSELS, Belgium (AP) -- Euro-zone inflation continued to slide in September, falling to 3.6 percent after peaking over the summer because of far higher food and fuel prices, the EU statistics agency said Tuesday.

But cooling prices offer little relief to a European economy suffering a crisis of confidence as consumers worry about a rising unemployment rate and companies fear that a banking meltdown will make it harder for them to get credit.

The yearly inflation rate hit a record-high 4 percent in July. It calmed to 3.8 percent in August but still remains far above the European Central Bank guideline of just under 2 percent.

High inflation prevents the ECB using its main lever over the economy -- hiking or lowering borrowing costs -- to help stoke or cool growth.

It is now under pressure to cut interest rates, which would encourage lending as a banking crisis tightens credit conditions -- reversing its June decision to raise rates in an effort to tackle high inflation.

"It's becoming increasingly difficult for the ECB to maintain the view that inflation remains the predominant concern" as growth slows, said Marco Valli, an economist at UniCredit.

Euro-zone economic confidence fell to a seven-year low in September as a survey of European businesses and consumers showed they are increasingly pessimistic about how well the economy is doing.

The Eurostat inflation figure is a first estimate that the EU agency will confirm -- and may revise -- on Oct. 15.

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