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Europe’s jobless rate lowest since 2008 amid recovery

April 4, 2018

FRANKFURT, Germany (AP) — Europe’s economic recovery is rolling ahead, driving down unemployment to the lowest in nearly a decade. But lagging inflation means the European Central Bank will be in no hurry to end its stimulus efforts.

The European Union’s statistics agency Eurostat said Wednesday that unemployment in the 19 countries that use the euro fell to 8.5 percent in February from 8.6 percent the month before.

That is the lowest since December 2008, shortly after the bankruptcy of U.S. investment bank Lehman Brothers plunged the word into a financial crisis. The eurozone then struggled with a crisis over excessive government and bank debt that threatened to break up the currency union.

The economy is now growing solidly, expanding by a decade-high rate of 2.5 percent in 2017 and lowering unemployment from a peak of 12.1 percent in 2013.

The fall in the rate came as number of jobless fell by 141,000 to 13.9 million. That’s the first time the number of people unemployed in the eurozone has fallen below 14 million since January 2009.

Yet, official figures also showed inflation slow to catch up through higher wages for workers. Consumer prices rose 1.4 percent in the year to March, up from 1.1 percent the month before, but below the European Central Bank’s goal of just under 2 percent.

Analysts said the headline figure was likely boosted by a calendar effect, since the Easter holiday came earlier this year, with much of the activity surrounding the holiday taking place in March rather in April. That likely led to an acceleration of inflation in some items, such as air fares and package vacations.

Core inflation, which excludes volatile food and fuel prices, remained stubbornly low at 1.0 percent. That suggests that underlying inflation pressures from such things as wage increases remain muted.

ECB President Mario Draghi has sought to explain the failure of wages to pick up substantially to the recent era of low interest rates and too-low inflation. They, he says, may have been “internalized” by wage negotiators, many of whom may also have been focused more on job retention than on securing higher pay.

To get inflation towards its goal, the ECB has slashed interest rates, including its main one to zero, and used monthly bond purchases to pump newly printed money into the economy. The ECB is predicting a pick-up in inflation over coming months as lower unemployment starts to work itself through the eurozone.

The central bank for the eurozone says the purchases will continue at the pace of 30 billion euros ($37 billion) per month at least through September. Analysts think the bank will then halt or phase out the purchases over ensuing months. Even then, they do not expect the bank to raise its interest rate benchmark from the current record low of zero until sometime in 2019.

Economist Jessica Hinds at Capital Economics said there is “still plenty of slack in the labor market” with high jobless rates of 16.1 percent in Spain, 10.9 percent in Italy and 8.9 percent in France.

“Core inflation remained weak in March, so the bank will continue to stress its patient and persistent approach to monetary policy normalization,” she said.

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