Inflation fell to 2.2 per cent in Europe, clearing way for a European Central Bank's Sept. rate cut

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Inflation in the 20 European Union countries that use the euro fell sharply to 2.2 per cent in August, opening the door for the European Central Bank to cut interest rates as the ECB and the US Federal Reserve prepared to lower borrowing costs to support growth and jobs.

The August figure was down from 2.6 per cent in July, according to figures on Friday from European Union statistics agency Eurostat. Energy prices fell in August by 3 per cent, helping lower the overall figure, while inflation fell to 2 per cent in Germany, the eurozone's largest economy.

The monthly figure is now close to the ECB's target of 2 per cent, the level considered best for the economy. The central bank is charged with maintaining stable prices under the treaty that set up the European Union. Not all of the EU's 27 countries use the euro.

Economists expect the ECB to cut its key rate by a quarter point from 3.75 per cent at its September 12 meeting, while the Fed is expected to cut rates from a 23-year high of 5.25 per cent - 5.5 per cent at its September 17-18 policy meeting.

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