Inflation falls but unemployment hinders recovery
Published 01/09/2010 | 05:00
EUROZONE inflation slowed in August, pointing to steady interest rates well into 2011 while unemployment remains high across the region with the worst rates seen in Ireland and Spain, underlining the two-speed recovery, figures showed yesterday.
Euro area consumer prices rose 1.6pc from a year ago, the European Union statistics office in Luxembourg said. The jobless rate held at a 12-year high of 10pc for a fifth month, according to a separate report.
No breakdown of the inflation figure is available until next month, but economists said the easing was most likely a result of cheaper energy and lower core inflation, which excludes the more volatile energy and food prices.
"Inflation will not be an issue for a period of one to two years," Christoph Weil, an economist at Commerzbank, said.
While unemployment in Europe's powerhouse Germany has been on the decline for 14 months in a row, and fell to 7.6pc in August, the opposite trend can be seen in Spain and Ireland -- where it rose to 20.3pc and 13.6pc in July respectively.
"We have the periphery countries where the labour market is showing no improvement and we have the core eurozone where the labour market is actually pretty good and continues to show good news," said Carsten Brzeski, economist at ING.
"The effect is, for long-term policy, that rates will remain on hold for a long while. It illustrates the divergence and the two-speeded recovery of the eurozone," he said.
About 15.8m people within the 16-nation euro region were unemployed in July, down 8,000 from the previous month. In the 27-member EU, unemployment held at 9.6pc in July.
Growth in Europe's manufacturing and service industries slowed in August and investor confidence in Germany dropped to a 16-month low.
German unemployment declined less than economists' forecast in August, a report released by the Labour Agency in Nuremberg showed yesterday.
The ECB, which aims to keep annual gains in consumer prices just below 2pc, will release its latest inflation and economic forecasts tomorrow when council members meet for their rate decision.
In June, the bank projected the euro area economy to expand about 1pc this year with inflation around 1.5pc.
"The European market continues to be a tough market," Unilever boss Paul Polman said recently after the world's second largest consumer goods maker reported a drop in sales across the region. Our business is driven by employment and consumer confidence and both don't show signs of change."