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 1.8 per cent in February, the EU’s statistics office Eurostat said yesterday, around the ECB’s target of below but close to two per cent, and by more than expected.
January’s unemployment rate meanwhile rose to 11.9 per cent 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 on March 7, and while only a minority of economists see any early move to cut the bank’s benchmark rate below the current 0.75 per cent, consumer prices are no longer an issue.
“Inflation is just not a concern, it is not a reason why policymakers would hesit-ate 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 expected inflation to fall to 1.9 per cent. The reading compared to two per cent in January.
While the slowing pace of price increases may make it easier for Europ-eans to buy food and clothing, it is 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 five per cent unemployment in Austria compared with 27 per cent in Greece, although Eurostat’s data from Athens were 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 peri-phery countries through to the second half of the year,” he said.
According to a Reuters poll, only 17 of 75 economists see an ECB rate cut this year, but the European Commission’s forecast last week that the eurozone will remain in recession this year could change that view.
Inflation pressures seem to have subsided overall, and the Commission, the 27-nation bloc’s executive, forecast the eurozone’s yearly inflation rate at 1.8 per cent 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)