| EU inflation remains steady, jobless rate scales new peak |
BRUSSELS Inflation in the euro zone remained steady for the third straight month in July, offering little comfort to consumers at a time when the number of people out of work continues to climb and the unemployment rate hit a record high.
Consumer prices in the 17 nations sharing the euro rose 2.4 per cent in July on an annual basis, the EU’s statistics office Eurostat said.
The bloc’s jobless rate, in a separate report, hit 11.2 per cent. Inflation is seen coming into line with the European Central Bank’s target of just below 2 per cent by the end of the year, unless oil prices rise sharply, and ECB President Mario Draghi said in early July the rate is slowing faster than forecast.
The lack of pressure on prices has given the ECB, which has a mandate to maintain price stability in the euro zone, some room to move. The bank cut its interest rate 0.25 point to a record low of 0.75 per cent and its deposit rate to zero in July.
The ECB’s August meeting on Thursday, typically a low-key affair during the European summer, will be intensely watched for any signs that Draghi is willing to do more to help reduce the high cost of money for governments and banks in Spain and Italy.
Draghi surprised investors last week by saying the bank was “ready to do whatever it takes to preserve the euro”, but it is unclear whether major new steps will be announced soon or later this year.
“If growth indicators continue to head south and market stress intensifies, the ECB may need to deliver another rate cut,” said Marco Valli, chief euro zone economist at UniCredit in Milan. “But conventional monetary policy tools have been exhausted, so what the euro zone needs is something much more effective,” Valli said. But such a move is not certain, and the ECB may hold off to intervene in tandem with the euro zone’s EFSF rescue fund.
Rising crude prices could also reduce the room for rate cuts, economists say, as inflation cools more slowly.
Brent crude is back to around $105 a barrel after dropping to as low as $90 a barrel in late June and oil prices continue to be supported by worries about supply from sanctions-hit Iran. Iran and the West have been at odds over Teheran’s nuclear ambitions, resulting in crippling sanctions that have cut the flow of Iranian oil to international markets.
Agencies
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