Europe Inflation Holds Steady; Jobless at Highest in 12 Years

European inflation held steady and unemployment rose to the highest in more than 12 years as the economy’s recovery loses some momentum.

Euro-area consumer prices rose 1.9 percent in November from a year earlier, the European Union statistics office in Luxembourg said in an initial estimate today. The jobless rate increased to 10.1 percent in October, the highest since July 1998, from 10 percent in September.

European companies are reluctant to add workers as rising energy costs threaten to curb profit margins and governments across the region step up budget cuts. European Union Economic and Monetary Affairs Commissioner Olli Rehn said yesterday that economic “slack” may contain wage growth and inflation, while forecasting an economic slowdown in 2011.

“Inflation will probably weaken over the coming months with unemployment set to rise further,” said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. “There are no pricing pressures and growth may weaken into 2011.”

About 15.95 million people in the 16-nation euro region were unemployed in October, up 80,000 from the previous month, today’s jobless report showed. In the 27-member EU, unemployment held at 9.6 percent. The jobless rate fell in eight EU member states and increased in 19 from a year earlier.

At 20.7 percent, Spain had the highest jobless rate in October while the Netherlands had the lowest at 4.4 percent. Separate data today from Germany’s Federal Labor Agency showed that unemployment in Europe’s largest economy fell for a 17th month in November, dropping to an 18-year low.

‘Uneven’ Recovery

The data further underscore the gulf between Germany and so-called peripheral nations such as Ireland and Portugal that are struggling to reduce budget deficits. On Nov. 28, Ireland became the second euro nation to receive external aid to help restore confidence.

“This recovery is uneven, and many member states are going through a difficult period of adjustment,” Rehn said yesterday. “A determined continuation of fiscal consolidation and frontloaded policies to enhance growth are essential to set the sound basis for sustainable growth and jobs.”

The Brussels-based commission forecasts that euro-region growth will weaken to 1.5 percent in 2011 from 1.7 percent this year. Greece is the only economy projected to shrink in both years, with Spain and Ireland seen returning to growth in 2011.

The European Central Bank, which aims to keep annual gains in consumer prices just below 2 percent, will release its latest inflation and economic forecasts on Dec. 2, when council members meet for their rate decision.

While higher unemployment is restraining demand, the euro’s 13 percent depreciation against the dollar over the past year has added to cost pressures by making imported goods more expensive. Crude oil prices rose 2.6 percent over the past month, bringing the annual increase to 10 percent.

Today’s inflation report is an initial estimate and the statistics office will release a breakdown on Dec. 16. In October, core inflation, which excludes volatile costs such as energy prices, accelerated to 1.1 percent from 1 percent.

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

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