* Consumer price inflation at 2 pct in January vs year-ago
* Inflation falls to lowest since November 2010
* Unemployment at 11.7 pct in December, remains at record
By Robin Emmott
BRUSSELS, Feb 1 Euro zone inflation fell to a
two-year low in January as companies cut prices at a time of
record joblessness, potentially giving the European Central Bank
more scope to lower interest rates later this year.
Inflation in the 17 countries using the euro fell to 2
percent in January compared to a year ago, the EU's statistics
office Eurostat said on Friday, its lowest level since November
2010 and well down from a 3 percent peak in September 2011.
That puts the annual rate of increase in the cost of living
just shy of the ECB's target of close to, but below 2 percent.
With Eurostat figures also showing euro zone unemployment at
a record 11.7 percent of the working population in December, the
ECB appears to have room to lower rates again to stimulate an
economy that has slipped into its second recession since 2009.
"Inflation is non-existent," said Thomas Costerg, an
economist at Standard Chartered in London. "Now with German
inflation decelerating, that will fuel debate about how the ECB
will ease policy," he said, forecasting a cut in the ECB's main
refinancing rate in the second quarter.
For the past year, inflation has been driven by oil prices
and tax increases, but stripping out those factors, annual
consumer price rises are around 1 percent, reflecting the
weakness of the economy.
The ECB's governing council kept rates at 0.75 percent at
its January meeting and will discuss rate policy again on Feb.
7. The decision to keep policy on hold was unanimous last month,
but economists are still divided over the ECB's future moves.
Thirty-eight out of 73 analysts polled in January by Reuters
said the ECB will remain on hold in the first quarter. None
expected a rate cut next week.
A stronger euro, which rose to a 14-month peak on Friday,
could also dampen the export-led economic recovery and
potentially support the case for a rate cut.
"You have to wonder whether this will lead to a reaction
from the ECB next week," said Nick Kounis, a senior economist at
ABN AMRO in Amsterdam.
An third consecutive improvement in euro zone business
morale in January and better factory output suggest the bloc has
passed the worst of its recession, however, meaning further ECB
stimulus in the form of lower borrowing costs may not be needed.
The ECB's task is also complicated by a divide between
wealthier, northern countries which are showing signs of
emerging from the euro zone's three-year-old debt crisis, and
countries such as Spain and Italy that are in deep recession.
Stark differences between euro zone countries' ability to
borrow also raises questions about the value of a rate cut. ECB
President Mario Draghi said late last year that monetary policy
is already "very accommodative."GROWING JOB QUEUES
The divergence in fortunes of euro zone economies is evident
not just in their ability to fund themselves, but in the rates
of joblessness seen across the bloc of 330 million people.
Highlighting the human cost of a debt crisis that began in
2009 in Greece and spread to the euro zone's biggest economies,
some 18.7 million people were out of work in December, an
unemployment rate of 11.7 percent. That figure has risen from
below 8 percent in early 2008, just before the full effects of
the global financial crisis were fully felt, and is well above
11.3 percent forecast by the European Commission for end-2012.
Unemployment held steady at just 5.3 percent in Germany, the
euro zone's biggest economy, however but rose again in Portugal
and Cyprus, to 16.5 percent and 14.7 percent respectively.
Greece holds the record in both the euro zone and the wider
European Union for worklessness, with a rate of 26.8 percent in
October, the latest figure available. The unemployment rate in
Spain fell slightly to 26.1 percent in December.
Even as the economy appears to have hit bottom, the number
of those out of work is expected to rise in coming months,
employment expectations in the latest Commission survey suggest.
"We would still expect the jobless rate to breach 12 percent
later this year," said Martin van Vliet, an economist at ING.