Euro-Area Inflation Unexpectedly Slowed in January on Energy

The euro-area inflation rate unexpectedly fell in January as high unemployment and austerity measures across the 17-nation currency bloc damped demand.

The annual inflation rate dropped to 2 percent from 2.2 percent a month earlier, the European Union’s statistics office in Luxembourg said today. Economists had forecast the rate to remain unchanged, according to the median of 39 estimates in a Bloomberg News survey.

The European Central Bank will leave its benchmark interest rate unchanged at 0.75 percent next week, economists forecast in a separate Bloomberg News survey. The central bank sees inflation at 1.6 percent this year and 1.4 percent in 2014. The euro-area jobless rate remained unchanged in December at 11.7 percent, a second EU report today showed.

“The data isn’t too surprising as the impact of sales in January on retail prices and oil price fluctuations are always difficult to predict,” said Dominique Barbet, senior economist at BNP Paribas in Paris. “Slowing inflation across the euro zone reflects a general slackening of activity with a marked deterioration in France as it joins the countries where deep budget cuts are weighing on growth.”

Energy prices increased 3.9 percent in January after a 5.2 percent gain a month earlier, today’s report showed. Prices of food, alcohol and tobacco rose 3.2 percent, the same as in December, while the cost of services rose 1.7 percent after a 1.8 percent gain.

ECB Forecast

The euro-area economy has shrunk for two successive quarters and economists foresee a further decline in gross domestic product in the final three months of last year. The ECB estimates contractions of 0.5 percent and 0.3 percent in 2012 and 2013. The ECB this week said lending to households and companies shrank for an eighth month in December.

Several countries this week reported inflation eased more than forecast during the first month of the year. The rate in Europe’s largest economy slowed to 1.9 percent from 2 percent in December, according to the German Federal Statistics Office, while it fell to the slowest pace since August in Spain.

The euro-area unemployment rate held at 11.7 percent as the November rate was revised down to 11.7 percent from 11.8 percent reported earlier. Economists had forecast an increase to 11.9 percent, the median estimate in a Bloomberg News survey of 34 economists.

Youth Unemployment

Today’s report showed that 18.7 million people were unemployed in the euro area in December, “nearly stable” from the previous month. The data also showed that youth unemployment is at 24 percent, with Spain’s rate more than double that, at 55.6 percent.

At 26.1 percent, Spain also had the highest overall jobless rate in the currency bloc among those countries reporting December data. Portugal’s unemployment rate was at 16.5 percent, while Ireland reported a jobless rate of 14.7 percent. Germany’s jobless rate was 5.3 percent and France’s stood at 10.6 percent. Austria had the lowest rate at 4.3 percent.

“January’s fall in euro-zone inflation is good news for consumers, but with unemployment still at a record high in December, incomes and spending will remain under severe strain,” Ben May, a European economist at Capital Economics in London, wrote in an e-mailed note. “By the middle of the year, we expect the headline inflation rate to be well below the ECB’s inflation target.”

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