Euro prices, jobs plunge, paving way for big cut

A flash estimate from Eurostat, the European Commission's statistics bureau, put annual inflation for November at 2.1%, down from 3.2% last month. The decline is the biggest since 1991 and leaves inflation just above the central bank's target of below but close to 2%. It is the lowest level since September 2007.

The final statistic is due out on 17 December, but the flash estimate has proven a reliable gauge of inflation, and over the last 24 months has exactly anticipated actual inflation on 15 occasions. On the other nine, the estimate differed by a mere tenth of a percentage point.

Euro-area unemployment rose to 7.7%, up from 7.6% in September and 7.3% last October. The rise amounts to 225,000 job losses in October.

The ECB council will meet in Brussels on 4 December and decide whether to break with tradition and cut by more than 50 basis points.

Most analysts still predict a half-point cut. But many believe conditions now warrant a bigger move, with the news on inflation coming on the back of dismal economic data.

"The case for a rate cut of more than the customary 50 basis points has never been stronger. In fact, we find it difficult to see any convincing argument against cutting rates by at least 75 basis points next Thursday," said Holger Schmieding, a senior economist at Bank of America. "As a raging financial storm impairs the transmission of any monetary stimulus, rates needed to be cut more aggressively than usual to have an appreciable impact on the real economy."

However, Lorenzo Bini Smaghi, a member of the ECB's executive board, indicated that council members may not share Schmieding's sentiments and suggested that market participants may be overplaying the dangers of deflation.

As the ECB does not publish council members' voting decisions it is impossible to tell whether Bini Smaghi's comments represent what is likely to be the consensus view.

Click here to read Eurostat's statement on inflation

Click here to read the statement on employment