Euro inflation hits two-year low

Europe's inflation rate fell to the lowest in more than two years in December as oil prices plunged and consumer spending slumped, increasing the scope for the European Central Bank to reduce borrowing costs further.

Consumer-price inflation in the euro area slowed to 1.6 percent from 2.1 percent in November, moving below the ECB's 2 percent ceiling for the first time since August 2007, the European Union statistics office in Luxembourg said yesterday. A separate report showed the region's services industry contracted for a seventh month.

As the global financial crisis damps economic growth, slowing inflation may prompt the ECB to extend a series of interest-rate cuts that already has seen its key rate fall by 1.75 percentage points since early October. The euro extended declines after the inflation report, falling to a three-week low.