European inflation leaves room for rate cuts

By Anna Willard

PARIS (Reuters) - Inflation slowed in Italy, France and Spain in September, reports showed on Tuesday, confirming the European Central Bank's view of reduced risks to prices and leaving room for more rate cuts.

This contrasted with the highest annual inflation in 16 years in Britain and a jump in inflation in Portugal. But analysts said this was the peak and prices would slow rapidly in the coming months as lower food and energy costs filtered down.

Consumer prices on an EU-harmonised basis rose at a slower pace than in August in Italy, Spain and France as fuel prices eased, official statistics showed.

"We were expecting some easing and we have strong hints that inflation is past its peak," said David Naude, economist at Deutsche Bank in Paris.

"It means the ECB has room to act if they want, if they need, and I suspect they will feel the need pretty soon."

The ECB and the Bank of England cut rates last week as part of a coordinated international effort to halt the worsening financial crisis.

Both central banks noted after the decision that they saw diminished inflation risks and analysts polled by Reuters are forecasting the ECB and the Bank of England to cut rates another 50 basis points before the end of the year.

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