Euro-area inflation held steady last month after the economy slipped into contraction and as companies eliminated jobs to weather the fiscal crisis.

The inflation rate in the 17-nation single-currency bloc remained at 2.4 per cent from a year ago, the same as in June and May, the European Union's statistics office in Luxembourg said today, confirming an initial estimate published on July 31.

Core inflation, excluding energy costs, quickened to 1.7 per cent from 1.6 per cent. That's the fastest since April 2009.

The euro-area economy contracted 0.2 per cent in the second quarter after stalling in the previous three months as governments stepped up budget cuts, undermining consumer and company spending.

While crude oil prices have increased about 12 percent over the past two months, the European Central Bank in July cut borrowing costs to a record low, with ECB president Mario Draghi on August 2 calling inflation risks broadly balanced.

"Overall, there are no inflation threats for the euro region given the economic environment," said Christian Melzer, an economist at Dekabank in Frankfurt.

"The economy will continue to shrink in the third and fourth quarters, weighing on prices. We expect another interest rate cut in September."

Euro-area consumer prices fell 0.5 per cent from the previous month, when they dropped 0.1 per cent, the statistics office said.

In the 27-nation EU, inflation held at 2.5 per cent.

Inflation slowed in 12 member states, remained stable in one and quickened in 14, the statistics office said.

The ECB's quarterly survey of professional forecasters showed last week that euro-area inflation may average 2.3 per cent this year before weakening to 1.7 per cent in 2013.

The central bank aims to keep inflation just below 2 per cent. Signs of a deepening economic slump may leave companies with less room to pass on higher prices, forcing them to focus on cost cuts instead.

The euro-area unemployment rate held at a record 11.2 per cent in June.

Adding to signs of easing cost pressures across Europe, producer-price inflation slowed to 1.8 per cent in June from 2.3 per cent in the previous month.

In Germany, Europe's largest economy, producer prices probably increased 1.2 per cent in July from a year earlier after rising 1.6 per cent in the previous month, a survey of economists shows ahead of tomorrow's release.

Bloomberg