European inflation at a 17-year low

European inflation has fallen at its sharpest rate since the early 1990s as a result of the drastic drop in the price of oil.

Between November and December, inflation has fallen to 2.1 percent experiencing a 1.1 percent drop in just a month.

This has given the European Central Bank (ECB) more leeway to cut interest rates as the ECB President, Jean-Claude Trichet, revealed yesterday there is no limit as to just how far interest rates can be dropped in a period of cooling inflation and slowing economic growth.

The ECB has reduced interest rates by 1.75 percent since October but they have not been as bold as the US Federal Reserve who have now reduced their main interest rates further and have vowed to use all available tools in their fight against the recession.

According to Alexander Koch, an economist UniCredit MIB, the outlook is not all positive due to the sudden fall in inflation rates and he has urged the ECB to act and not wait any longer.

Thus far the European Commission and the ECB have been pragmatic in fighting the economic downturn, however an onus on being more flexible in their approach might offer greater results.

The ECB has similarly stayed relaxed in the prevention of financial markets freezing and has vowed to keep entry into the euro at the same criteria.

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