Eurozone inflation rises to 1 pct in January

[January 29, 2010]  LONDON (AP) -- Consumer prices in the 16 countries that use the euro rose by 1 percent in the year to January, official figures showed Friday -- a further sign that inflationary pressures in the eurozone remain relatively benign.

In its preliminary estimate, the EU statistics office Eurostat did not provide any details as to why inflation edged up modestly from December's 0.9 percent rate, but analysts think it was likely due to higher oil prices from a year earlier.

Further details about January will be published next month but the rise is likely to be seized upon in the markets as evidence that inflationary pressures remain subdued -- the consensus in the markets was for inflation to tick up to 1.2 percent.

The lower than expected rate will also reinforce market predictions that the European Central Bank will keep its benchmark interest rate at the historic low of 1 percent next Thursday. The central bank is tasked with setting interest rates to keep inflation close to but below 2 percent.

Jonathan Loynes, chief European economist at Capital Economics, said inflation remains "strikingly subdued" in the eurozone, especially compared with the near 3 percent rates being recorded in the U.S. and Britain.

"Part of this no doubt reflects the impact of the strong euro, but general price pressures also appear to have responded to the recession and resulting spare capacity in the economy and labour market," said Loynes.

"The ECB has good reason to be more dovish than both the Fed and the Bank of England," he added.

Part of the reason why inflationary pressures remain muted is that rising unemployment has borne down on wage demands.

Other Eurostat figures Friday showed unemployment in the eurozone rose to 10 percent in December for the first time since the single European currency was established in 1999. November's figure had previously been estimated at 10 percent but was revised lower to 9.9 percent.

The highest unemployment rate in the eurozone was Spain's 19.5 percent while the lowest was the 4 percent in the Netherlands.

Eurostat said a further 87,000 jobs were lost across the eurozone during December. That was the lowest increase since May 2008 and provides further evidence that the peak in unemployment could be near especially if the recovery from recession gathers pace over the coming few months.

[Associated Press; By PAN PYLAS]

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