Inflation Steady in Euro Area, but Number of Jobless Grows

The European Union statistics office Eurostat said that inflation in the 17 countries using the euro was 2.5 percent year-on-year in August, the same as in July, as expected by economists.

The E.C.B. wants to keep inflation below but close to 2 percent, and economists had been expecting the bank to raise interest rates a third time this year to 1.75 percent from 1.5 percent to stem price pressures.

Eurostat also reported that unemployment was 10 percent in July, unchanged from an upwardly revised June rate, which was initially reported at 9.9 percent. But the number of unemployed in the euro zone rose by 61,000 in July against June to 15.757 million.

“The latest data and surveys fuel belief that the E.C.B.’s ultimate next move may actually be to trim interest rates,” said Howard Archer, economist at IHS Global Insight. But, he added, the central bank probably will want to see “sustained” economic weakness to “do a U-turn.”

Aline Schuiling, an economist at ABN AMRO, said the stabilization was likely due to a decline in energy price inflation balancing a rise in the core inflation rate.

“Looking forward, we expect inflation to remain well above the E.C.B.’s price stability goal this year, before falling below this level next year, as energy price inflation drops back noticeably while the rise in the core rate is restrained by the moderate level of economic growth,” she said.

The E.C.B. president Jean-Claude Trichet said on Monday that the bank was reviewing the risks to price stability, suggesting it could tone down its view on inflation pressures.

In its last staff projections, released in June, the E.C.B. forecast euro zone inflation in a range of 2.5-2.7 percent this year and 1.1-2.3 percent in 2012.

The rise in the number of unemployed is likely to slow down wage growth and therefore help keep down underlying inflation, said Jennifer McKeown, European Economist at Capital Economics.

“These data should help to convince the E.C.B. that its earlier fears of a sharp rise in inflation were unwarranted, perhaps opening the door to interest rate cuts in the not too distant future,” she said.

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