April 30 (Bloomberg) -- Europe’s unemployment rate rose to the highest in more than three years and inflation held at a record low, increasing pressure on the European Central Bank to take steps to tackle the worst recession in half a century.

Unemployment in the euro area jumped to 8.9 percent in March, the highest since November 2005, the European Union statistics office in Luxembourg said today. The March rate was above the 8.7 percent median forecast of 26 economists in a Bloomberg News survey. A separate report showed inflation held at 0.6 percent in April, the lowest since the data were first compiled in 1996.

BASF SE, the world’s largest chemical company, and Robert Bosch GmbH, the biggest car-parts maker, are among companies that are cutting jobs to survive Europe’s worst recession since World War II. With rising joblessness and concerns about deflation, the ECB is under pressure to indicate what other measures it can use to stem the recession.

“If unemployment is higher than expected and rising rapidly, that has major repercussions for both the inflation outlook and the growth outlook, so it’s a figure for the ECB to worry about,” said Howard Archer, chief European economist at IHS Global Insight in London. “It cements expectations that the ECB will not only cut rates next week but will take other measures as well.”

Consumer Prices

The euro was off its high against the dollar after the data’s release. The European currency was 0.4 percent higher at $1.3318 at 10:30 a.m. in London, after reaching $1.3386 earlier.

Spain’s unemployment rate was the highest in the region, at 17.4 percent. Spain, like Ireland, is seeing consumer prices decline on an annual basis, separate data today showed.

The jobless rate in Germany, Europe’s largest economy, increased for a sixth straight month. Ludwigshafen, Germany- based BASF today said first-quarter profit dropped 68 percent and announced 2,000 job cuts.

The ECB, which has cut its benchmark rate by 3 percentage points since early October to a record low of 1.25 percent, meets next on May 7. President Jean-Claude Trichet has indicated the central bank will cut its benchmark rate again and promised to announce new non-standard measures to combat the crisis.

Lending to euro-area companies and households declined for a second month in March, extending the worst drop since records began 18 years ago, ECB data showed yesterday. The European Commission said consumers expect prices to fall over the next 12 months, the first time the price-outlook gauge has been negative since at least 1990.

Budget Range

As consumers cut spending, Carrefour SA, Europe’s largest retailer, said on April 22 that it will introduce a budget range next month covering more than 400 product lines.

So far, the ECB has resisted following the U.S. Federal Reserve and Bank of England, which have cut their key rates to close to zero and started pumping money into their economies by buying government and corporate debt.

The ECB has focused on trying to revive bank lending by offering financial institutions as much cash as they want against eligible collateral for up to six months. Some policy makers have suggested the ECB may soon start lending banks money for longer periods.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

Last Updated: April 30, 2009 05:39 EDT