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Eurozone Inflation Eases On Energy Prices; Unemployment Declines Sharply

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Eurozone inflation slowed unexpectedly in January reflecting a fall in energy prices and added pressure on the central bank to take more actions to avoid the possibility of deflation in the 18-nation bloc.

Nonetheless, the labor market showed unemployment in December declining at the biggest pace since April 2007.

Inflation fell for the second month in a row in January, to 0.7 percent from 0.8 percent in December, flash estimates released by Eurostat showed Friday. Economists had forecast inflation to accelerate to 0.9 percent in January.

Inflation has stayed below the European Central Bank's target of 'below, but close to 2 percent' for the twelfth consecutive month and matched the October figure, a four-year low.

Meanwhile, core inflation that exclude energy, food, alcohol and tobacco prices, rose to 0.8 percent, in line with expectations, from 0.7 percent in December.

IHS Global Insight economist Howard Archer believes it is more likely than not that the ECB will hold fire at its next policy meeting, scheduled for February 6.

With ECB President Mario Draghi recently sounding lukewarm on LTROs and quantitative easing, Jonathan Loynes, chief European economist at Capital Economics, expects an interest rate cut as the most likely move, if not next week then in March.

Among sub-components of consumer prices, food, alcohol and tobacco prices rose 1.7 percent, while energy costs declined 1.2 percent. Cost of non-energy industrial goods gained 0.2 percent and that of services advanced 1.1 percent. More details of January data will be released on February 24.

In a separate communique, Eurostat said unemployment declined for the third consecutive month in December. The number of unemployed decreased steeply by 129,000 from November to 19.01 million. The latest monthly fall was the sharpest since April 2007.

At the same time, the jobless rate came in at 12 percent for the third straight month in December. The rate was expected to rise to 12.1 percent.

The highest jobless rate was seen in Greece, followed by Spain. The latest available data for Greece showed the unemployment rate was 27.8 percent in October.

Youth unemployment decreased by 23,000 to 3.5 million in the euro area, with the rate falling to 23.8 in December from 24 percent in November.

"While we remain sceptical that a decisive turnaround in Eurozone labour markets has started, it really does now look like they have stabilized overall after prolonged weakness," IHS Global Insight's Archer said.

In the EU28, the jobless rate was 10.7 percent in December, down from 10.8 percent in November.

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