Economy & Finance

Euro zone inflation subdued as employment keeps falling

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BRUSSELS (Reuters) – Inflation in the euro zone rose from a three-year low in May, but remained low enough for the European Central Bank to act to boost an economy which is shedding jobs at an increasing rate.

The central bank expects economic recovery in the euro area to kick in later this year, but sees risks to growth from governments’ continued austerity programs and as companies struggle to access credit from banks.

Prices of electricity, fruit and vegetables lifted annual inflation in the currency bloc to 1.4 percent in May compared to 1.2 percent in April, the EU statistic agency Eurostat said, confirming preliminary estimates.

Price growth, however, is still well under the ECB’s target of close to, but below, 2 percent. At its policy meeting last week, the bank discussed a raft of options it could take if the euro zone economy does not emerge from recession later this year.

The euro zone’s malaise was visible in a 0.5 percent drop in employment first three months of the year from the previous quarter. The data from Eurostat reflected an unemployment rate that reached a record high in April, with 19.4 million people out of work.

The first quarter fall in employment was deeper than the 0.3 percent decline in the last three months of 2012, and meant the number of people in jobs was 1.0 percent lower than a year ago.

“It highlights the fact that the euro zone continues to face major headwinds and still has its work cut out to return to sustainable growth,” Howard Archer, chief European economist at IHS Global Insight, said in a note.

European Union leaders have vowed to crack down on rising unemployment, especially among the young, and focus on how to encourage growth amid the tighter economic conditions.

(Reporting by Martin Santa- Editing by Toby Chopra)

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