Eurozone misery as jobless rate rises to a record

Inflation in the 17-nation eurozone, which is suffering from its longest ever recession, increased to 1.6 per cent year-on-year in June from 1.4 per cent in May, the EU’s statistics office Eurostat said.

Joblessness in the bloc stood at a record 12.1 per cent in May, with the number of people out of work rising further above 19 million, Eurostat added.

Government austerity programmes across the continent have helped fuel the economic hardship and provoked widespread public discontent, especially with more than half of young people unemployed in Greece and Spain.

June’s inflation reading was the second upward move from a three-year low of 1.2 per cent in April, although it remains beneath the European Central Bank’s target of just under 2 per cent.

Economists expect inflation to remain below the target for the rest of this year, giving the ECB scope to leave interest rates at a record low, although signs of improvement at European factories may stop the bank from cutting rates again.

“June’s rise was driven rather by unfavourable base effects and the ECB has flagged the possibility of short-term inflation volatility,” said Nick Matthews, a senior European economist at Nomura. “We expect inflation to drop sharply again in summer.”

Prices of food, alcohol and tobacco products were the key factor driving inflation in June, followed by energy and services, Eurostat said in its first estimate for the month.

Core inflation, which strips out volatile food and energy prices, was stable at 1.2 per cent, and did not appear to sustain an upward trend, economists said.

The ECB said last week it will keep its accommodative monetary policy stance to help a gradual economic recovery that is expected to start in the second half of this year. “The low inflation rate will permit the ECB to leave interest rates at very low levels for a long time,” said Christoph Weil, an economist at Commerzbank, who expects the bank to start increasing rates at the end of next year.

The eurozone’s economy has been stuck in a recession for the past year and a half, feeling the aftermath of its banking and debt crisis that has driven unemployment to record levels. Growth is likely to be minimal in the rest of 2013.

Still, the bank is not expected to cut its main interest rate from a record low of 0.5 per cent when it meets on Thursday, preferring to keep pressure on European governments to push ahead with difficult economic reforms.

European Union leaders reiterated at a summit last week they would step up the fight against unemployment, which stood at 19.2 million in the eurozone in May, and agreed to launch a special scheme for young jobless Europeans.

But the 6-billion-euro (£5.1bn) plan over two years is unlikely to be enough to tackle youth unemployment that is near 60 per cent in Greece and Spain.

Overall, close to six million people between the ages of 15 and 24 are without a job, prompting talk of a “lost generation” and concerns of unrest.

There are also wide differences in unemployment rates.