Inflation unchanged, unemployment steady

EURO-AREA inflation remained unchanged in August and unemployment held steady for a second month in July as economic growth in the region slowed amid a persistent sovereign debt crisis.

The inflation rate remained at 2.5% after falling to that level in July, the European Union’s statistics office in Luxembourg said yesterday in an initial estimate. The seasonally adjusted jobless rate remained at 10%, a separate report showed. Eurostat revised March, May and June unemployment up to 10% from 9.9%.

Europe’s economy cooled more than economists forecast in the second quarter and economic confidence plunged in August, suggesting companies may find it more difficult to pass on higher costs and boost hiring. Economic and Monetary Affairs Commissioner Olli Rehn indicated this week that the EU may reduce its 2011 growth forecast from 1.6% on concerns that financial turbulence could spill into the broader economy.

The European Central Bank “is expected to step back at its September policy meeting from indicating that a further interest rate rise is likely this year,” acknowledging that “the downside risks to growth have increased while the upside risks to inflation have diminished,” said Howard Archer, chief European economist at IHS Global Insight in London.

ECB president Jean-Claude Trichet said on August 29 that the bank is reviewing its assessment of inflation threats ahead of the September 8 rate decision after policy-makers raised borrowing costs twice this year to 1.5% to fight price pressures. Inflation in the 17-nation euro region has exceeded the Frankfurt-based ECB’s limit since December.

The ECB will release its latest economic projections next week. In June, the central bank forecast euro-region inflation to average 2.6% this year and 1.7% in 2012. Growth may slow to 1.7% in 2012 from 1.9% this year.

“Underlying inflation pressure remains moderate considering the economy is only growing moderately,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “While inflation will remain above the ECB’s limit this year, it should drop below 2% next year.”