LONDON (AP) — Mass unemployment in Greece and Spain combined to push the jobless rate across the 17-country eurozone up to its highest rate since the euro was established in 1999, official figures showed Thursday
The rise in the eurozone unemployment rate to 10.7 percent, reported by Eurostat, the European Union's statistics office, was unexpected and is likely to trigger renewed concerns over the outlook for the wider economy. If unemployment — and the accompanying fear of unemployment — is rising, consumers may rein in their spending. This could further dent an already-contracting eurozone economy.
Consumers' appetite to open their wallets will likely be further constrained by the accompanying news that inflation in the eurozone unexpectedly also rose in February to 2.7 percent from the previous month's 2.6 percent. The markets had been pricing in no change from January, and the increase takes inflation further above the European Central Bank's target of keeping price rises at just below 2 percent. Inflation has been above target for 15 months now.
"This is particularly bad news for consumers as they are not only facing high and rising unemployment but also still squeezed purchasing power," said Howard Archer, chief European economist at IHS Global Insight. "It had been hoped that eurozone consumer price inflation would be heading down markedly by now but these hopes are being scuppered by high oil prices."
In recent weeks, oil prices have edged up to nine-month highs on the back of brighter economic news out of the U.S., the world's largest economy, and ongoing tensions over Iran's nuclear plans. Without the recent increase, analysts reckon inflation would be much closer to target.
Since the ECB's primary role is maintain its measure of price stability, persistently-high inflation has reined in market expectations of any further interest rate reductions any time soon. Early this year, there had been a growing consensus that the ECB would push its benchmark interest rate below 1 percent for the first time ever.
The ECB holds its monthly policy meeting next week and all expectations are that it will keep its benchmark rate unchanged at the record low of 1 percent, especially after its massive injection of cash into the banking system on Wednesday.
"The latest eurozone data revealed a combination of stubborn inflation and rising unemployment at the start of the year, suggesting that the recent rebound in consumer sentiment may falter before long," said Ben May, European economist at Capital Economics.
The figures come as EU leaders gather in Brussels to discuss a strategy to boost economic growth. Eight of the 17 countries in the eurozone are, according to the European Commission, are expected to contract during the first three months of 2011.
Those sort of projections aren't likely to do much to help turn round the unemployment rate in the eurozone, which is at alarming levels in some countries. The consensus in the markets was for the January rate to remain unchanged at December's previously reported rate of 10.4 percent. Instead, December's rate was instead revised upward to 10.6 percent.
Europe's unemployment rate has been steadily ticking up all year as the wider economy wanes in the face of a protracted debt crisis that's meant widespread austerity measures being pursued across the single currency zone. The eurozone economy contracted by 0.3 percent in the final three months, though recent indicators have suggested that it may avoid a recession — defined as two consecutive quarters of negative growth.
Spain had the highest unemployment rate in the eurozone at 23.3 percent in January, while Greece's had edged up to 19.9 percent in December, the last available figures for the debt-ridden country.