Business World

Sunday 17 December 2017

Eurozone inflation rate dips as unemployment hits all-time high

Ethan Bilby and Robin Emmott

Inflation fell in the eurozone in February and joblessness rose to an all-time high, highlighting the impact of the bloc's debt crisis.

Annual inflation in the 17 countries sharing the euro was 1.8pc last month, the EU's statistics office Eurostat said, around the European Central Bank's target of below but close to 2pc, and by more than expected.

January's unemployment rate, meanwhile, rose to 11.9pc in the bloc, up from 11.8 in December, with another 201,000 people out of work, Eurostat said separately.

The sombre economic situation will likely weigh on the ECB's Governing Council when it meets next week, and while only a minority of economists see any early move to cut the bank's benchmark rate below the current 0.75pc, consumer prices are no longer an issue.

"Inflation is just not a concern, it is not a reason why policymakers would hesitate to cut interest rates," said Sarah Hewin, head of European research at Standard Chartered.

"They could move as early as next week, but there's an element of the ECB wanting to keep its powder dry as we enter an uncertain political situation with Italy and the Cypriot debt question to be resolved."

Economists polled by Reuters had expected inflation to fall to 1.9pc. The reading compared to 2pc in January.

While the slowing pace of price increases may make it easier for Europeans to buy food and clothing, it is of little comfort to the record 19 million people unemployed in the eurozone.

Three years of crisis have driven major eurozone economies, such as Italy and Spain, into a grinding recession, with businesses unable to obtain the financing they need to expand and citizens unable to earn enough to spend with confidence.

Overall joblessness also masks a large divide, with only 5pc unemployment in Austria compared with 27pc in Greece, although Eurostat's data from Athens was from November, the latest available.

"The economic division between the (heavily indebted) southern periphery and the core will not change in 2013," said Commerzbank economist Christoph Weil.

"While the economy in the core countries . . . should grow again in the first quarter, it will probably still contract in most periphery countries through to the second half of the year," he said.

Inflation pressures seem to have subsided overall, and the commission, the 27-nation bloc's executive, forecast the eurozone's yearly inflation rate at 1.8pc in 2013.

"It's very hard to judge because the ECB's commentary doesn't always send a clear signal about what they're likely to do," said Greg Fuzesi, an economist at JP Morgan.

"But there is definitely scope for a rate cut and there is a case for one." (Reuters)

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business