Eurozone consumer price annual inflation eased in August from a 20-month high, reflecting lack of underlying inflationary pressure. Meanwhile, July's 12-year high unemployment rate continues to add pressure on wages as the pick up in economic activity has not yet penetrated into the labor market.
August's annual inflation came in at 1.6%, slightly smaller than 1.7% in the previous month, preliminary data from the European Union statistical office Eurostat showed. Annual inflation came in line with economists' expectations. The annual rate stayed within the European Central Bank target of 'below, but close to, 2%' over the medium term.
Detailed breakdown of the consumer price index will be released on September 15. The slowdown in August was possibly due to a reduced upward pressure from energy prices. In July, core inflation rose to 1%, primarily mirroring the impact of the Value Added Tax increases in many member countries.
Food inflation in Eurozone would have continued rising moderately, while core inflation probably was stable at 1%, according to Marco Valli, an economist at UniCredit Research. In September, inflation should resume rising as the base effect on energy turns unhelpful. The economist sees inflation fluctuating between 1.5% and the ECB's definition of price stability (just below 2%) through end-2011.
Among major economies in the EA16, only Germany, Spain and Italy released inflation figures for August. When EU harmonized annual inflation eased to 0.9% from 1.2% in Germany, it slowed only slightly to 1.8% from 1.9% in Spain. Meanwhile, Italian inflation remained at 1.8%.
The ECB has been retaining the key interest rate at a historic low since the middle of 2009. The last change in the rate was in May 2009, when the bank cut the rate by 25 basis points to the current level of 1%. Given the weakness in consumer price growth, the central bank is widely expected to hold the key rate on September 2. No rate hike is seen in the near-term.
The unemployment rate in the currency bloc came in at 10% in July for a fifth month, the highest in 12 years and in line with expectations. "This is testimony to the low level of utilization in the Eurozone labour market," said ING Bank NV's Martin van Vliet.
A substantial risk of Eurozone unemployment rising again later this year and during 2011 exists, said Howard Archer at IHS Global Insight. Eurozone growth will possibly slow in the face of tighter fiscal policy and slower global growth, while public sector jobs are set to be pared in a number of countries, particularly in 2011, the economist said.
Eurostat said a total of 15.8 million people were registered unemployed in the eurozone, with the number of unemployed decreasing by 8,000 compared to the previous month. The male unemployment rate was 9.8%, while the female unemployment rate was 10.3%. The EU27 unemployment rate was 9.6% in July, unchanged from June and bigger than the prior year's 9.1%.
Among the member states, the lowest unemployment rates were recorded in Austria and the Netherlands, while the highest rate was seen in Spain, at 20.3%. Latvia showed the second highest rate of 20.1% in July, followed by Estonia. Compared with a year ago, three states recorded a fall in the unemployment rate, while the rate remained stable in two. Twenty-two states reported an increase.
"However, the overall Eurozone figure continues to mask a diverging performance between member states," added ING Bank NV's Martin van Vliet. With the spare capacity in the economy and the labour market set to continue to restrain underlying price pressures, the medium-term outlook for Eurozone inflation remains subdued, the economist noted.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.