Rising unemployment and steady price pressures suggest ECB could cut rates

City A.M. Reporter
EUROZONE annual inflation was unchanged in August while the number of people without jobs grew, data showed yesterday, adding to expectations that the next ECB interest rate move could be a cut rather than a hike.

EU statistics office Eurostat said inflation in the 17 countries using the euro was 2.5 per cent year-on-year in August, the same as in July, as expected by economists.

The European Central Bank wants to keep inflation below but close to two per cent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 per cent from 1.5 per cent to stem price pressures.

Eurostat said unemployment was 10 per cent in July, unchanged from an upwardly revised June rate, which was initially reported at 9.9 per cent. But the number of unemployed in the Eurozone rose by 61,000 in July against June to 15.757m.

“The latest data and surveys fuel belief that the ECB’s ultimate next move may actually be to trim interest rates although it is likely to need sustained Eurozone economic weakness to... do a U-turn,” said Howard Archer, economist at IHS Global Insight.

Fuller data will be published on 15 September. “We think the stabilisation was the combined result of a decline in energy price inflation and a rise in the core inflation rate,” said ABN Amro economist Aline Schuiling.