Euro-zone prices fall as unemployment rises

[July 31, 2009]  BRUSSELS (AP) -- Falling prices and rising unemployment in the 16 nations that use the euro show an economy still mired in recession despite recent green shoots of recovery, according to EU statistics published Friday.

Euro-zone consumer prices fell for a second month in July as the June jobless rate rose to a 10-year high to 9.4 percent, the EU statistics agency Eurostat said.

Unemployment lines grew by 158,000 from May to June in the euro-zone, it said, as companies make cutbacks to cope with falling demand for goods and services at home and abroad. Some 3.17 million more people are out of work compared to June last year.

Lower demand for energy and other goods has caused prices to plunge 0.6 percent in the year to July. That means there was disinflation in the euro-zone for a second month in a row after the year-on-year rate fell to minus 0.1 percent in June and hit zero in May.

Friday's figures dampen brighter news about the economy released earlier this week. Euro-zone business and consumer confidence figures rose to an 8-month high in July as companies and shoppers were more optimistic about coming months.

Industrial managers also see the recession bottoming out, with companies restocking supplies they ran down in recent months.

But EU economists warn that confidence levels are still running near record lows and that industrial output is shrinking from a year ago.

EU spokeswoman Amelia Torres said the inflation figure was "only a temporary blip" triggered by plunging energy and food prices. Officials expect "inflation to turn positive again" in coming months and to remain just below 2 percent for the near future, she said.

That depends on disinflation staying short-lived and not turning into full-scale deflation -- a downward price spiral that can harm the economy with a vicious circle of declining demand, worsening debt and job losses, as happened during the Great Depression of the 1930s.

Inflation is largely driven by oil prices, which have dropped by more than half from an all-time of $147 a barrel last July to $67 in early Friday trading. Eurostat will confirm and explain what is behind falling inflation on Aug. 14.

Eurostat also downgraded its unemployment figure for May from 9.5 percent to 9.3 percent. It said the jobless rate across the entire 27-nation European Union was 8.9 percent in June and 8.8 percent in May.

It said the June figures were the highest for the euro area since June 1999 and for the EU since June 2005. Some 14.89 million people were seeking work in the euro area last month, it said, and some 21.52 million across the EU.

Torres said the pace of job losses peaked in March and was now slowing down.

Spain had Europe's highest unemployment rate in June at 18.1 percent, followed by Baltic nations Latvia at 17.2 percent and Estonia at 17 percent. A third of Spanish under-25s can't find a job, it said.

Jobs are disappearing in all EU nations, Eurostat said, but Germany has seen the smallest rate of increase in its employment rate over the year, growing from 7.3 percent to 7.7 percent.

[Associated Press; By AOIFE WHITE]

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