Slow progress in Eurozone as jobless, inflation rates hold steady

BRUSSELS (AFP) - The eurozone unemployment rate was steady at a near-record 12 per cent in January, with a modest economic recovery yet to produce any sharp headline improvement, while February inflation was also flat, data showed on Friday.

The official figures suggest the bloc continues to make slow progress after exiting a record 18-month recession in second quarter 2013 but growth since then has been far from stellar, reflected in the high jobless figures and low inflation.

Analysts said the economy seems to be stabilising but the European Central Bank will have to be on guard and ready to take more stimulus measures if need be.

Inflation is muted while the "jobs problem is far from over as the unemployment rate remains damagingly high at 12 per cent," said Mr Howard Archer of IHS Global Insight.

The January outcome meant the jobless rate has been flat at 12 per cent since hitting a record 12.1 per cent in September.

For the 28-member European Union, the January unemployment rate was also unchanged at 10.8 per cent.

The eurozone jobless total in January was 19.18 million, with 26.23 million out of work in the EU, representing falls of 67,000 and 449,000 compared with January 2013.

Compared with December 2013, however, both totals were up by 17,000.

By country, the lowest January unemployment rates were in Austria, on 4.9 per cent, with 5.0 per cent in Germany, Europe's biggest economy.

Twice-bailed out Greece was hardest hit with 28 per cent (based on November figures) followed by Spain on 25.8 per cent.

Inflation in the 18-nation currency bloc was flat at 0.8 per cent in February, Eurostat said.

By component, food, alcohol and tobacco prices rose 1.5 per cent in February, a slower rate than the 1.7 per cent reported in January while energy costs were down 2.2 per cent after a fall of 1.2 per cent, Eurostat said.

Inflation has trended steadily lower in recent months, coming in well below the ECB target of close to but just under 2.0 per cent and stoking concerns about a risk of deflation, or falling prices in absolute terms.

Deflation is dangerous because if consumers believe prices will fall they put off purchases, which forces companies to delay investment, hitting salaries and jobs, and so setting up a vicious downward circle.

ECB chief Mario Draghi insisted again on Thursday that he saw no danger of deflation as there was no "evidence of consumers postponing expenditure plans."

Even though current inflation rates "can clearly not be considered close to 2.0 per cent... we are clearly not in deflation, which is defined as a self-reinforcing fall in prices that is broad-based across items and across countries," Mr Draghi said.

Mr Archer said inflation may have bottomed out but it "is still markedly lower than the ECB would like," a concern when coupled with falling bank lending to businesses.

Price increases will be limited "by relatively limited economic activity... excess capacity and ongoing wage moderation amid still elevated unemployment," he said.

Mr Jonathan Loynes at Capital Economics said inflation is "likely to stay very low or fall further" given a strong euro and "a large degree of slack in the economy".

"Meanwhile, the continued high level of unemployment... will ensure that wage pressures remain subdued," he said, meaning the ECB may very well take fresh action next week.