Eurozone Inflation Rises Whilst Unemployment Remains Unchanged

By: DailyForex.com

Fears (such as they were) of deflation in the Eurozone have dissipated. The headline figure for inflation across the 19 states which use the Euro has hit two percent which is beyond the upper bound of the European Central Bank’s target (of “slightly” below 2%). In principle, this should be causing technocrats at the ECB to start considering ways to control inflation which would normally signal an incremental rise to the Bank’s interest rate, but this is unlikely in the current circumstances.

Whilst the headline figure for inflation has climbed to 2%, the underlying inflation figure which excludes fluctuations in fuel and food prices has remained unchanged at 0.9%. The headline figure rose from 1.8% in January to stand at 2% last month, but it is the first time that the figure has exceeded target inflation since 2013. The ECB is still actively engaged in a quantitative easing programme which is designed to boost liquidity and inject some inflation into the Eurozone economy. As things stand, the Bank intends to reduce its bond purchasing activities from €80 billion to €60 billion a month from next month, but will continue the programme until the end of the year at least. The Bank’s main interest rate is currently held at 0%, so ultimately it would want to see rates rise to afford it manoeuvring room for the next recessionary cycle. It is a sign of the relative weakness of the Eurozone economy (and other major economies) that long after the worst of the Global Financial Crisis has passed, interest rates are still well below the long-term average level of 2.15% (1998 – 2017, range 0 to 4.75%).

Employment is a lagging indicator of the economic cycle and is an index which the ECB will be monitoring closely. Across the Eurozone, unemployment remained steady in January at an average figure of 9.6%. The unemployment situation is the best it has been since May 2009 and stands at 15.6 million people. It also has fallen below the long-term average for the Eurozone of 9.79% (1995 – 2017; range 7.2 to 12.2%).

Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.