RTTNews - Eurozone consumer prices declined less than expected in August indicating a possible reversal of negative inflation in months ahead.

Consumer prices dropped 0.2% in August from the previous year, a flash estimate from the European Union statistics office in Luxembourg showed Monday. Economists had expected the consumer price index to drop 0.4% in August, following a record fall of 0.7% in July.

The European Central Bank aims at inflation rates below, but close to 2% over the medium term.

The statistical office is set to issue the final CPI report for August on September 16.

Elsewhere, a preliminary report from the Italian statistical office ISTAT showed that consumer prices including tobacco rose 0.2% year-on-year in August after posting zero growth in July.

According to preliminary data, the German CPI remained unchanged on an annual basis in August, compared with a 0.5% fall in the previous month.

Commenting on the Eurozone CPI data, Commerzbank analyst Christoph Weil said the inflation rate will continue to rise sharply in the coming few months. Further, the oil market bubble burst will trigger a slump in oil prices of around 70% between July 2008 and the start of 2009.

Inflation will reach 1% again towards the end of the year. High surplus capacities limit companies' pricing scope, while the notable rise in unemployment will curb pay momentum. Commerzbank forecasts a core inflation rate of 0.5% in the autumn of 2010.

These factors give the ECB ample room to delay its monetary policy reversal for a while longer. Weil sees no rate hike in the current year despite the emerging strong growth in the second half of 2009.

The ECB had maintained its key interest rate at a record low level of 1% for the third straight month in August. The bank has lowered the key interest rate by a total of three and a quarter percentage points since early October 2008.

The euro area shrank 0.1% sequentially in the second quarter, which was much slower than the 2.5% decline seen in the first quarter. But, the gross domestic product continued the stretch of decline that began in the second quarter of 2008. The statistical office is scheduled to issue the detail report for the second quarter on September 2.

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