Tags: Eurozone | Inflation | Unemployment | europe

Eurozone Unemployment Hits Record-High 11.2% as Inflation Steady

Tuesday, 31 July 2012 07:23 AM EDT

Inflation in the eurozone remained steady for the third straight month in July, offering little comfort to consumers at a time when the number of people out of work continues to climb and the unemployment rate hit a record high.

Consumer prices in the 17 nations sharing the euro rose 2.4 percent in July on an annual basis, the EU's statistics office Eurostat said on Tuesday, maintaining a level first touched in May as Brent crude fell sharply and brought prices down.

The bloc's jobless rate, in a separate report, hit 11.2 percent.

Inflation is seen coming into line with the European Central Bank's target of just below 2 percent by the end of the year, unless oil prices rise sharply, and ECB President Mario Draghi said in early July the rate is slowing faster than forecast.

The lack of pressure on prices has given the ECB, which has a mandate to maintain price stability in the eurozone, some room to move. The bank cut its interest rate 0.25 point to a record low of 0.75 percent and its deposit rate to zero in July.

The ECB's August meeting this Thursday, typically a low-key affair during the European summer, will be intensely watched for any signs that Draghi is willing to do more to help reduce the high cost of money for governments and banks in Spain and Italy.

Draghi surprised investors last week by saying the bank was "ready to do whatever it takes to preserve the euro", but it is unclear whether major new steps will be announced soon or later this year.

"If growth indicators continue to head south and market stress intensifies, the ECB may need to deliver another rate cut," said Marco Valli, chief eurozone economist at UniCredit in Milan. "But conventional monetary policy tools have been exhausted, so what the eurozone needs is something much more effective," Valli said.

Nineteen out of 24 money market traders surveyed by Reuters said they expect the ECB to restart its mothballed bond-buying program with purchases of Spanish and Italian debt, with 10 out of 19 expecting it to announce this on Thursday.

But such a move is not certain, and the ECB may hold off to intervene in tandem with the eurozone's EFSF rescue fund.

Rising crude prices could also reduce the room for rate cuts, economists say, as inflation cools more slowly.

Brent crude is back to around $105 a barrel after dropping to as low as $90 a barrel in late June and oil prices continue to be supported by worries about supply from sanctions-hit Iran. Iran and the West have been at odds over Tehran's nuclear ambitions, resulting in crippling sanctions that have cut the flow of Iranian oil to international markets.


Steady, rather than falling, consumer prices are of little bonus to European households suffering what is set to be the bloc's second recession in just three years.

Another 123,000 people were out of work in eurozone in June, Eurostat said in a separate release, putting the unemployment rate at 11.2 percent of the working population, a new euro-era high. That number was the same as May, after Eurostat revised up the data for that month from an earlier reading of 11.1 percent.

But the number also disguised wide divergences, with unemployment as low as 4.5 percent in Austria and 24.8 percent in Spain, the highest level in the bloc.

Spain slid deeper into recession in the second quarter as a tough new round of austerity to head off the budget crisis that threatens the euro affected both overall demand and the prices consumers have to pay for goods.

France, the eurozone's second largest economy, also saw unemployment rise in June to 10.1 percent.

France's biggest phone equipment supplier, Alcatel-Lucent, and carmaker PSA Peugeot Citroen have both announced major job cuts as they struggle with losses.

Economists see signs that the strong German economic engine of growth is succumbing to the weakening effects of the eurozone crisis. In separately released data, more Germans were without a job in July although the employment rate was stable at 6.8 percent.

"The labor market has been Germany's active immunization against the ongoing eurozone crisis," ING economist Carsten Brzeski wrote in a note to clients. "However, signs that this immunization is fading away are hard to miss."

© 2024 Thomson/Reuters. All rights reserved.

Tuesday, 31 July 2012 07:23 AM
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