Europe Inflation Unexpectedly Quickens; Jobless at 12-Year High

European inflation unexpectedly accelerated to the fastest in almost two years and unemployment was at a 12-year high as the recovery showed signs of losing momentum.

Euro-area consumer prices rose 1.9 percent in October from a year earlier after increasing 1.8 percent in September, the European Union statistics office in Luxembourg said today. That’s the fastest since November 2008 and above the 1.8 percent forecast by economists in a Bloomberg survey. The jobless rate was 10.1 percent in September, the highest since July 1998, a separate report showed.

Crude-oil prices have jumped 9.2 percent over the past two months, leaving companies and consumers with less money to spend just as a stronger euro threatens to hurt exports. With the recovery faltering and governments tackling budget deficits, companies may keep hiring plans on hold, further eroding spending.

“The euro-region labor market is in a poor condition and will probably even worsen in 2011,” said Christian Melzer, an economist at Dekabank in Frankfurt. “That’s why we’re far from a wage-price spiral.”

Today’s inflation report is an initial estimate and the statistics office will release a breakdown of consumer prices on Nov. 16. Economists had forecast inflation at 1.8 percent in October, the median of 20 estimates in a Bloomberg survey showed. Core inflation, which excludes volatile costs such as energy prices, was at 1 percent in September.

Higher Costs

Companies may struggle to pass on higher costs to households as governments from France to Spain step up efforts to push down budget shortfalls such as through tax increases. Europe’s manufacturing and service industries expanded at the weakest pace in a year in October and German investor confidence dropped to the lowest in almost a year.

While a stronger euro is helping contain price pressures, it’s also threatening exports, which drove the recovery in the first half of the year. MAN SE, the region’s third-largest truckmaker, yesterday reported third-quarter profit that beat analysts’ estimates. Schneider Electric SA, the world’s biggest maker of circuit breakers, raised its full-year margin target for a second time on Oct. 20.

While the euro-region economy expanded at the fastest pace in four years in the second quarter, that’s failed so far to translate into faster job creation as companies remain reluctant to boost labor costs.

Unemployment

Some 15.9 million people within the euro region were unemployed in September, up 67,000 from the previous month, today’s report showed. The August jobless rate was revised to 10 percent from 10.1 percent reported earlier.

At 20.8 percent, Spain had the highest jobless rate in the euro region, while the Netherlands had the lowest rate at 4.4 percent. In the 27-nation EU, unemployment held at 9.6 percent last month.

The European Central Bank, which aims to keep annual gains in consumer prices just below 2 percent, has signaled confidence that the euro-area economy will avoid a renewed recession. ECB President Jean-Claude Trichet projected “moderate” inflation in 2011 on Oct. 7.

There are signs pointing toward a “certain weakening in the second half of the year,” ECB Executive Board member Juergen Stark said on Oct. 27. Still, the recovery “should continue at a moderate pace.”

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

• LinkedIn
• Google +1
• Print
• QUEUE