Europe Economy

Euro-Zone August Inflation Drops to 1.7%


Inflation in the 13 euro nations was 1.7% in August, the European Union's statistical agency said Friday, lowering its earlier estimate of 1.8%.

Inflation was 1.8% in July and 1.9% in June -- beneath the European Central Bank's guideline of just under 2% that it looks to when it decides whether to raise the cost of borrowing to cool overheating prices.

Higher prices for restaurants and cafes, tobacco and education accounted for the August inflation, Eurostat said.

The euro area's relatively low inflation rate has, in recent months, been influenced by falling energy prices after an oil price spike that has masked higher prices for food -- particularly key groceries such as milk and wheat.

Germany, the EU's largest economy, saw inflation of 2%. In the euro zone, Slovenia had the fastest rate of price increases, with inflation of 3.4%, ahead of Greece at 2.7% and Ireland at 2.3%. The lowest rates were seen in the Netherlands with a provisional figure of 1.1%, Belgium at 1.2% and France at 1.3%.

In the entire 27-nation European Union, inflation was 1.9%, ranging from 0.6% in tiny Malta to 10.6% in the fast-growing Baltic state of Latvia.

Europe has so far managed to enjoy high growth and low prices but that may be coming to an end. The European Commission on Tuesday raised its forecast for inflation for the whole of the year, up 0.1 percentage points to 2%.

It also warned that it was more unsure of how well the euro economy would continue to grow the rest of this year following a credit crisis triggered by problems in the U.S. housing market that has raised borrowing costs and made a global slowdown more likely.