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Oct. 31 (Bloomberg) -- European inflation unexpectedly remained at a three-year high and unemployment increased, complicating the European Central Bank’s task of bolstering the region’s faltering economy.
The inflation rate in the euro area held at 3 percent in October from the previous month, the European Union’s statistics office in Luxembourg said in an initial forecast today. That’s the highest rate since October 2008. European unemployment unexpectedly rose to 10.2 percent in September from 10.1 in August, according to a separate report.
The ECB earlier this month resisted calls to lower its benchmark interest rate from 1.5 percent, instead opting to extend the use of unconventional measures to fight a worsening fiscal crisis. With the economy cooling and governments stepping up budget cuts, companies may struggle to raise prices, easing cost pressures across the region.
Recent data suggest that “underlying euro-zone inflationary pressures are easing and suggest the ECB has scope to act,” said Howard Archer, chief European economist at IHS Global Insight in London. “Euro-zone economic activity is clearly being held back by tighter fiscal policy increasingly kicking in across the region.”
The euro was lower changed against the dollar, trading at $1.3983 at 10:02 a.m. in London, down 1.2 percent on the day.
Economists had forecast euro-area unemployment to hold at a previously reported 10 percent in September, according to the median of 33 estimates in a Bloomberg News survey. In the 27- nation EU, the jobless rate increased to 9.7 percent from 9.6 percent in the previous month, today’s report showed.
The ECB, which aims to keep annual gains in consumer prices just below 2 percent, said on Sept. 8 that euro-region inflation may average 2.6 percent this year and 1.7 percent in 2012. Economic growth may weaken to 1.3 percent next year from 1.6 percent in 2011, the central bank forecast.
About 16.2 million people were unemployed in September in the euro region, up 188,000 from the previous month, today’s report showed. At 22.6 percent, Spain had the highest unemployment rate in Europe. Austria and the Netherlands had the lowest rates, with 3.9 percent and 4.5 percent, respectively.
The Frankfurt-based central bank is scheduled to hold its first rate meeting under Mario Draghi on Nov. 3. Six economists out of 54 forecast the ECB will lower the benchmark interest rate, with the rest projecting the central bank to keep borrowing costs at 1.5 percent, a Bloomberg survey shows.
The statistics office will release a breakdown of October consumer prices next month. Euro-region core inflation, which excludes volatile costs such as energy, quickened to 1.6 percent in September from 1.2 percent in the previous month.
ECB council member Ewald Nowotny said in an interview with Bloomberg Television on Oct. 21 that council members “always discuss all options” at their policy meetings, when asked about a rate cut. He also said that the central bank will have to “take into account” in next economic projections the fact that “unfortunately there is a tendency” of a global slowdown.
Steven Barrow, head of Group of 10 currency strategy at Standard Bank Plc in London, said in an e-mailed note ahead of today’s data that while there is a case for lower borrowing costs, Draghi may be reluctant to cut the benchmark this week.
“We feel that the ECB will cut rates” he said. “But it’s another tough call as it’s Draghi’s first meeting as president and he may not want to cut rates at the first opportunity for fear of being seen as a soft touch on inflation.”
--With assistance from Harumi Ichikura in London and Ainhoa Goyeneche in Madrid. Editors: Jones Hayden, Matthew Brockett
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