Europe in grip of deflation fears as unemployment reaches record high
16 Mar 2009
Inflation in Europe stayed close to a 10-year low and payrolls contracted by the most on record as the worst global recession since World War II deepened.
The annual inflation rate in the 16 nations that use the euro rose slightly from 1.1 to 1.2 per cent in January, the EU's statistical office Eurostat said. It said the rise in fuel prices added 0.21 percentage point to overall year-on-year inflation, more expensive restaurants and cafes another 0.15 percentage point and electricity 0.12 percentage point.
Pricier vegetables and meat also boosted the index. The goods with the biggest downward impact on the index were fuels, heating oil, telecommunications, clothes, and audiovisual and information technology equipment, Eurostat said.
Employment declined 0.3 per cent in the fourth quarter of 2008 after a loss of 0.1 per cent in the third quarter. The first quarter of 2008 had seen a 0.4 per cent rise. This marks the second quarterly contraction and the biggest decline since the data series started in 1995, a separate report showed.
A loss of employment is a stark sign of economic crisis as companies hold off on hiring staff to sit out the bad times and deal with a drop in demand. Since the crisis only gripped the labor market after the summer, the overall employment in the euro area in 2008 still rose by 0.8 per cent.
Oil prices are down by two-thirds since a July peak and Europe's jobless rate is at a two-year high, prompting deflation concerns and putting pressure on the European Central Bank (ECB) to announce new measures to stimulate lending. Data last week added to the concerns. European producer prices unexpectedly fell on an annual basis in January for the first time since 2004.
ECB President Jean-Claude Trichet said last week that deflationary risks were ''negligible,'' even as he left the door open to another interest-rate cut. The central bank, which expects inflation to average just 0.4 per cent this year, has already reduced its key rate by more than half since early October to a record low of 1.5 per cent.