Euro inflation stays negative, unemployment rises

[October 30, 2009]  BRUSSELS (AP) -- Inflation in the 16 nations that use the euro remained negative for a fifth consecutive month in October while unemployment continued to rise, the EU statistics agency said Friday, suggesting the region's economic recovery was sluggish.

Consumer prices were down 0.1 percent from a year earlier, compared with a 0.3 percent annual drop in September.

Analysts and officials had expected a rise on the year as companies and consumers started spending more after a long freeze in demand.

The euro's recent surge against the dollar undermined that because it reduced the eurozone cost of dollar-priced oil. The euro rose to a 14-month high of $1.5020 against the dollar on Oct. 23.

Eurostat also reported Friday that eurozone unemployment rose to 9.7 percent in September, the highest level since Jan. 1999. Some 184,000 more people were seeking work from August when the rate was 9.6 percent.

Across the entire 27-nation EU, the unemployment rate rose to 9.2 percent in September from 9.1 percent a month earlier with 286,000 more people joining jobless lines. This is the highest rate since EU statistics started in Jan. 2000.

Some 22.123 million people are now out of work in the EU, 15.324 million of them in the euro area. Since September last year, some 5 million jobs have disappeared in the EU and 3.2 million have gone from euro nations.

Latvia has the EU's highest rate at 19.7 percent, with Spain close behind with the eurozone's worst unemployment rate of 19.3 percent. The Netherlands is the lowest in both regions at 3.6 percent.

Unemployment is likely to keep climbing despite rising demand as companies cut costs. Europe's economic downturn may have bottomed out -- it probably pulled out of recession in the third quarter -- but growth is still fragile.

A fall in consumer prices is a sign of weak economic activity, which slackens demand for goods -- especially oil. Eurostat did not explain the reasons for the October drop but will give more details when it confirms the figure on Nov. 16.

The eurozone price index turned negative in June as energy costs plunged from record highs a year earlier. It hit an all-time low at minus 0.7 percent in July and began climbing as oil prices recovered this summer and signs of an economic recovery appeared.

UniCredit economists had forecast inflation rising to a positive 0.2 percent in October. European Central Bank President Jean-Claude Trichet has also hinted at a positive figure this month.

European Union leaders said in a draft statement Friday that it was too soon to withdraw billions of euros (dollars) in stimulus programs that are supporting economic growth.

They said they would wait until a recover "is fully secured," avoiding setting a date for an exit strategy until they meet again for talks in December.

EU finance ministers have said that efforts to repay mounting public debt should start in 2011 if forecasts due on Nov. 3 confirm a solid recovery.

Leaders also warned that mounting unemployment required governments to reform labor markets "to prevent high unemployment levels from becoming persistent." This urges changes to European rules that make it costly for companies to quickly hire and fire workers.

[Associated Press; By AOIFE WHITE]

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