Low inflation, high jobless rate show euro crisis impact

BRUSSELS Fri Mar 1, 2013 7:39am EST

An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013. REUTERS/Kai Pfaffenbach

An illuminated euro sign is seen in front of the headquarters of the European Central Bank (ECB) in the late evening in Frankfurt January 8, 2013.

Credit: Reuters/Kai Pfaffenbach

BRUSSELS (Reuters) - Inflation fell in the euro zone in February and joblessness rose to an all-time high, highlighting the impact of the bloc's debt crisis.

Annual inflation in the 17 countries sharing the euro was 1.8 percent in February, the EU's statistics office Eurostat said on Friday, around the ECB's target of below but close to 2 percent, and by more than expected.

January's unemployment rate meanwhile rose to 11.9 percent in the bloc, up from 11.8 in December, with another 201,000 people out of work, Eurostat said separately.

The somber economic situation will likely weigh on the ECB's Governing Council when it meets on March 7, and while only a minority of economists see any early move to cut the bank's benchmark rate below the current 0.75 percent, consumer prices are no longer an issue. <ECB/INT>

"Inflation is just not a concern, it is not a reason why policymakers would hesitate to cut interest rates," said Sarah Hewin, head of European research at Standard Chartered.

"They could move as early as next week, but there's an element of the ECB wanting to keep its powder dry as we enter an uncertain political situation with Italy and the Cypriot debt question to be resolved."

Economists polled by Reuters expected inflation to fall to 1.9 percent. The reading compared to 2 percent in January.

While the slowing pace of price increases may make it easier for Europeans to buy food and clothing, it is little comfort to the record 19 million people unemployed in the euro zone.

Three years of crisis have driven major euro zone economies, such as Italy and Spain, into a grinding recession, with businesses unable to obtain the financing they need to expand and citizens unable to earn enough to spend with confidence.

SCOPE FOR A RATE CUT

Overall joblessness also masks a large divide, with only 5 percent unemployment in Austria compared with 27 percent in Greece, although Eurostat's data from Athens was from November, the latest available.

"The economic division between the (heavily indebted) southern periphery and the core will not change in 2013," said Commerzbank economist Christoph Weil. "While the economy in the core countries ... should grow again in the first quarter, it will probably still contract in most periphery countries through to the second half of the year," he said.

According to a Reuters poll, only 17 of 75 economists see an ECB rate cut this year, but the European Commission's forecast last week that the euro zone will remain in recession this year could change that view.

Inflation pressures seem to have subsided overall, and the Commission, the 27-nation bloc's executive, forecast the euro zone's yearly inflation rate at 1.8 percent in 2013.

"Its very hard to judge because the ECB's commentary doesn't always send a clear signal about what they're likely to do," said Greg Fuzesi, an economist at JP Morgan. "But there is definitely scope for a rate cut and there is a case for one."

(Reporting by Ethan Bilby and Robin Emmott; editing by Rex Merrifield/Ruth Pitchford)