Eurozone's high unemployment, inflation test new ECB chief
Mario Draghi - Photo EC
(BRUSSELS) - Stubbornly high eurozone unemployment and inflation running far over target at 3.0 percent, according to data on Monday, pose a dilemna for incoming ECB chief Mario Draghi over whether to cut interest rates.
Inflation is expected to remain stable at 3.0 percent in October, the same level as in September, but well above the threshold favoured by the European Central Bank for price stability, the EU statistical agency Eurostat said.
If confirmed, it will be the 11th month with inflation over the ECB ceiling of about 2.0 percent, raising a first challenge for Draghi.
He takes the helm of the bank on Tuesday from outoging chief Jean-Claude Trichet and chairs his first board meeting on Thursday.
The central bank has maintained its main interest rate at 1.5 percent despite the threat of a new recession across the 17-nation eurozone and rising inflation.
But top economies are slowing with the eurozone set to shrink briefly, and rapid action by European leaders to enact promised crisis measures is key to global recovery, the OECD said on Monday.
High inflation tends to discourage central banks from cutting rates, but high and rising unemployment can be a signal of slowing economic activity and therefore inflationary pressures, and could indicate a rate cut.
"In the advanced G20 economies, interest rates should remain on hold or, where possible, be reduced, notably in the euro area," said the Paris-based Organisation for Economic Cooperation and Development.
"Further monetary relaxation, including through unconventional measures, would be warranted if downside risks intensify," it added.
Eurostat offered no further details on its estimate but economists said the figure, above the 2.8 or 2.9 percent expected by markets, appeared due to continuing high energy prices.
But while a fall of energy prices could help bring down inflation, deficit trimming across the eurozone could have the opposite effect.
Italy's decision to raise VAT sales tax for instance this month pushed inflation there to a record 3.4 percent. France is mulling a similar move.
Analysts said Draghi was unlikely however to cut rates at his very first meeting "even if we think it would be necessary" given the economic gloom, said Marie Diron at Ernst & Young.
The next ECB board is set for December.
In more signs of a downturn, Eurostat's latest data showed one out of 10 people out of work in September for the fifth month running.
Topping the charts with the highest month-to-month hikes were Greece and Soain -- seeing increases from 12.6 to 17.7 percent, and 20.5 to 22.6. respectively.
Eurostat estimated 16,198 million people were looking for jobs, or 188,000 more than in August, when the rate stood at 10.1 percent.
September's data was the worst since June 2010.
Across the 27-nation European Union unemployment rose to 9.7 percent in September compared with 9.6 percent in August and 9.6 percent in September 2010.