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Euro zone inflation slows in December; core rate remains stable

A zoom-burst image shows the illuminated euro sign in front of the headquarters of the European Central Bank (ECB) in Frankfurt in this April 5, 2011 file photo.

Kai Pfaffenbach/REUTERS

Cheaper phone calls, clothes and vegetables slowed consumer price growth in December as expected despite more expensive fuel and cigarettes while the core inflation measure watched by the European Central Bank was stable, data showed on Wednesday.

The European Union's statistics office Eurostat said consumer inflation in the 19 countries sharing the euro was 0.4 per cent month-on-month in December and 1.4 per cent year-on-year, down from 1.5 per cent in November.

Of all components, energy prices rose the most at 2.9 per cent year-on-year in December, while unprocessed food gained 1.9 per cent. Without these two volatile components, or what the ECB calls core inflation, prices rose by 1.1 per cent year-on-year, the same as in November and in October.

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Some economists believe that a better measure of core inflation is the one that takes out not only energy and unprocessed food but also alcohol and tobacco, the prices of which are often influenced by government tax changes.

But this measure also held stable at 0.9 per cent in December, unchanged form the previous two months.

The ECB wants to keep inflation below but close to 2 per cent over the medium-term and has been buying government bonds on the secondary market to inject more cash into the banking system and so to stimulate credit to the economy.

But while the euro zone economy is growing at its fastest pace in a decade and unemployment is at nine-year lows, this has not yet translated into significantly faster price growth.

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