ECB under pressure to act amid high unemployment

The European Central Bank (ECB) is facing increased pressure for fresh action to spur economic growth after data released on Friday showed eurozone inflation slowed to a near-five year low in August and unemployment remained stuck at close to a record high.

While consumer prices eased to 0.3 per cent in August from 0.4 per cent in July, unemployment held steady at 11.5 per cent in July after hitting a record 12 per cent in September last year, the European Union’s statistics office Eurostat said.

“The very low eurozone inflation reading for August reinforces pressure on the ECB to consider further monetary stimulus on top of what is already in the pipeline,” ING Bank economist Martin van Vliet said.

The jobs and inflation data could force the ECB to speed up its consideration of launching a quantitative easing policy to boost economic activity in the currency bloc and drive inflation back up towards the bank’s target of just under 2 per cent.

Still, analysts are not expecting the ECB to announce any new measures to boost inflationary pressures in the currency bloc and encourage employers to step up hiring when it meets in Frankfurt next Thursday.

Instead, the Frankfurt-based bank is likely to wait until it can assess the impact on the economy of the slew of measures it announced in June.

This included cutting interest rates to record lows and rolling out new cheap loans in a bid to ease tight credit conditions in southern European states.

Analysts, however, expect the eurozone’s faltering economy to result in the ECB lowering both its growth and inflation forecasts for next year and 2016.

The European Commission said on Wednesday that its closely watched Economic Sentiment Indicator fell to its lowest level this year in August amid global tensions triggered in part by the crisis in Ukraine.

Underlining the deflation fears facing the eurozone, consumer prices in Italy dropped into negative territory of 0.2 per cent for the first time since July 2009 after the currency bloc’s third biggest economy stumbled back into recession during the second quarter.

The eurozone’s downbeat economic outlook has also triggered political tensions across the region with the French government resigning earlier this week amid a power struggle in Paris over what action the country should take to haul itself out of stagnation.

Annual consumer prices in the 18—member currency bloc grew in August at the lowest rate recorded since October 2009, which was in the months following the global financial crisis.

This followed a sharp fall in energy costs, which dropped by 2 per cent in August compared with the same month last year. Food, alcohol and tobacco prices also edged lower, while the costs of services gained 1.2 per cent.

Stripped of volatile items such as energy and food, the eurozone’s annual core inflation rate climbed to 0.9 per cent in August from 0.8 per cent in July.

The overall inflation rate for the eurozone in August was in line with analysts’ forecasts.

The July seasonally adjusted unemployment rate was also in line with analysts’ projections. Unemployment now stands at its lowest level since September 2012, Eurostat said.

A total of 18.4 million people were out of work in the eurozone, with Greece and Spain posting the highest unemployment rates at around 25 per cent.

But the July jobless rate in Spain as well as in Ireland and Portugal were lower than in the same month last year.

The lowest rates continued to be recorded in Germany and Austria, at just under 5 per cent.

“Unemployment in Europe is slowly decreasing, but not at the pace needed to end the current unacceptably high unemployment levels, especially among young people,” said European Commissioner for Employment, Social Affairs and Inclusion Laszlo Andor.

Friday’s figures also contained some encouraging signs for youth unemployment, which slipped from 24 per cent in July last year to 23.2 per cent in July 2014 after 563 000 people found work.

A total of 3.3 million people under the age of 25 were jobless in the currency bloc, with the highest rates found in Spain and Greece at more than 53 per cent.

In the wider 28—member EU, overall unemployment also stagnated at 10.2 per cent in July, while the youth unemployment rate was down to 21.7 per cent.

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