Euro zone unemployment reaches record high

Euro zone unemployment is at a record high according to new statistics from Eurostat, while inflation is also on the rise, with consumer prices being driven upward by volatile energy and food prices, underlining the fragility of the bloc's economic health.

Inflation in the 17-nation euro zone, which is suffering from its longest ever recession, increased to 1.6 per cent year-on-year in June from 1.4 per cent in May, the EU’s statistics office Eurostat said. Joblessness in the bloc stood at a record 12.1 per cent in May, up from 12.0 per cent in April, with the number of people out of work rising further above 19 million, Eurostat added.

Latest figures for Ireland show that the unemployment rate was 13.7 per cent in May, unchanged from April.

Government austerity programs across the continent have helped fuel the economic hardship and provoked widespread public discontent, especially with more than half of young people unemployed in Greece and Spain. June’s inflation reading was the second upward move from a three-year low of 1.2 per cent in April, although it remains beneath the European Central Bank’s target of just under 2 per cent. Economists expect inflation to remain below the target for the rest of this year, giving the ECB scope to leave interest rates at a record low, although signs of improvement at European factories may stop the bank from cutting rates again.

“June’s rise was driven rather by unfavourable base effects and the ECB has flagged the possibility of short-tern inflation volatility,” said Nick Matthews, a senior European economist at Nomura. “We expect inflation to drop sharply again in summer.” Prices of food, alcohol and tobacco products were the key factor driving inflation in June, followed by energy and services, Eurostat said in its first estimate for the month. Core inflation, which strips out volatile food and energy prices, was stable at 1.2 percent, and did not appear to sustain an upward trend, economists said.

The ECB said last week it will keep its accommodative monetary policy stance to help a gradual economic recovery that is expected to start in the second half of this year. “The low inflation rate will permit the ECB to leave interest rates at very low levels for a long time,” said Christoph Weil, an economist at Commerzbank, who expects the bank to start increasing rates at the end of next year.