Inflation falls, unemployment still increases

Eurozone inflation dropped sharply to nearly four-year lows in October and unemployment stuck at record highs in September, increasing pressure on the European Central Bank to do more to protect economic recovery.

Inflation fell to 0.7% year-on-year in October (the lowest reading since Nov 2009) a flash estimate from the EU’s statistics office showed yesterday. The inflation rate dropped below 1% for the first time since Feb 2010. Analysts expected inflation to be unchanged at 1.1% in October.

The ECB, which meets on Thursday, wants to keep inflation below, but close to 2% over the medium term. Its main refinancing rate is already at a record low of 0.5%.

“We see December as the most probable timing for a 25 basis points cut in the refi rate, in tandem with another round of low staff projections for inflation, including for 2015,” said Ken Wattret, chief eurozone market economist at BNP Paribas.

The €9.5tn economy of 17 countries sharing the single currency returned to growth in the second quarter, but fiscal consolidation, high unemployment, and weak business and consumer confidence are preventing a more robust rebound. Eurostat said costs of food, alcohol and tobacco rose by 1.9%, but energy fell 1.7% year-on-year.

Price growth is also kept in check by record high unemployment. Eurostat previously reported the number of people out of work fell to 12% of the workforce in August, raising hopes of a turnaround in the labour market. However, it yesterday revised the August number up to 12.2% and said the rate had not changed in September. In absolute figures, the number of people without work even increased by 60,000 in September against August to 19.447 million people.

European Commissioner for Employment Laszlo Andor said the rate was unacceptably high and continued to undermine a more robust recovery.

— Reuters