Inflation in Euro Zone Falls as Unemployment Stays Flat

By DAVID JOLLYJAN. 31, 2014
The New York TImes

BRUSSELS — Europe’s labor market remained in the doldrums in December, while the inflation rate ticked back down to the same level that recently led the European Central Bank to cut interest rates, official data showed Friday. The reports suggested that the bank will be under pressure to provide more monetary stimulus to keep a nascent recovery alive.

The jobless rate in the euro zone was 12 percent, unchanged since October after a revision of prior months’ data, Eurostat, the statistical agency of the European Union, reported from Luxembourg.

For the entire 28-nation European Union, the December jobless rate was 10.7 percent, down marginally from 10.8 percent a month earlier. Eurostat estimated that 26.2 million in the European Union were looking for work last month.

The inflation rate came in at 0.7 percent in January, Eurostat said in its initial estimate, slowing from 0.8 percent in December. The “core” rate, which strips out energy, food, alcohol and tobacco, was 0.8 percent, up from 0.7 percent in December.

Economists surveyed by Reuters had expected the inflation rate to rise to 0.9 percent, and had expected the jobless rate to remain unchanged.

Mario Draghi, the president of the E.C.B., and his colleagues on the bank’s governing council, surprised investors in November by cutting its main rate target by a quarter of a point to a record low 0.25 percent, amid concern that Europe might be headed toward a Japan-style deflationary quagmire. The central bank acted after the euro zone inflation rate fell to the 0.7 percent level; the bank tries to hold inflation at just below 2 percent.

Mr. Draghi, who has cautioned that the euro crisis will not be over until the labor market begins to recover, has more recently sought to play down the risk of deflation, perhaps to hold in reserve the possibility of a last major rate cut, to zero.

The E.C.B. reported on Wednesday that growth in the broad money supply, known as M3, fell to 1 percent in December from a 1.5 percent pace a month earlier, while loans to the private sector shrank by 2.3 percent from December 2012. Those numbers indicate that credit is not reaching the real economy — despite the central bank’s ultralow interest rates and other extraordinary measures to support the economy.

A report Friday from the German Federal Statistical Office showed that retail sales in Germany fell sharply in December, dropping 2.5 percent, after a 0.9 percent rise in November.

Other recent data have painted a more positive picture of the economic outlook. Consumer and business confidence have been relatively strong, and a January survey of European purchasing managers suggested industrial activity in the euro zone was at its highest level since mid-2011.