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Euro zone jobs and inflation data may influence ECB

Euro zone jobs and inflation data may influence ECB
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The latest euro zone unemployment figures show 10 percent of the working population was without a job in July; that is up by 61,000 from June to 15.757 million. Spain recorded the worst unemployment level at 21.2 percent.

Around the euro zone one in five of those under the age of 25 is jobless. In Spain almost half – 46 percent – of the country’s young people are unemployed.

The latest figures from Germany show unemployment there fell in August – though the rate of decline slowed.

Federal Labour Office chief Frank-Juergen Weise said: “The economic upswing is losing momentum,” but he added: “The job market’s generally good performance continued in August.”

The headline figure used in Germany – that is not adjusted for seasonal factors – actually rose by 5,000 but the numbers point to employers continuing to hire workers.

The seasonally adjusted data showed unemployment fell by 8,000 in Europe’s biggest economy, less than the 10,000 forecast by economists. The jobless rate remained at seven percent of the workforce.

At the same time it was revealed that euro zone annual inflation was unchanged in August – at 2.5 percent.

The jobs and inflation figures combined have added to expectations the European Central Bank may cut rather than raise interest rates next time around to stimulate the economy.

ECB President Jean-Claude Trichet said on Monday the bank was reviewing the risks to price stability, suggesting it could tone down its view on inflation pressures.

The ECB wants to keep inflation below but close to 2.0 percent, and before the release of the latest data economists had been expecting policymakers to raise interest rates a third time this year to 1.75 percent from 1.5 percent to stem price pressures.

Jennifer McKeown, European Economist at Capital Economics, said the rise in the number of unemployed is likely to slow down wage growth and therefore help keep down underlying inflation.

“These data should help to convince the ECB that its earlier fears of a sharp rise in inflation were unwarranted, perhaps opening the door to interest rate cuts in the not too distant future,” she said.

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