Euro zone inflation fall, record jobless point to ECB rate cut

Tue Apr 30, 2013 8:09am EDT
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By Robin Emmott and Annika Breidthardt

BRUSSELS/BERLIN (Reuters) - Inflation in the euro zone has fallen to a three-year low and unemployment has hit a new record, cementing expectations of an interest rate cut by the European Central Bank later this week.

With the bloc's economy mired in recession, inflation tumbled to 1.2 percent in April, the lowest level since February 2010 and the biggest monthly drop in more than four years, the European Union's statistics office Eurostat said on Tuesday.

That put the annual rate of increase in the cost of living well below the ECB's target of close to, but below 2 percent, raising pressure on the central bank to act to aid growth.

Euro zone unemployment meanwhile reached a record 12.1 percent of the working population in March.

EU leaders are already trying to shift away from the budget cuts that have dominated the response to the debt crisis since 2009, and the data will raise the specter of deflation as companies slash prices to entice shoppers.

But the European Commission, which polices countries' debts and deficits, defended its insistence on sustainable public accounts that many economists blame for deepening the two-year recession, saying it had "no austerity dogma".

"That is a caricature, our approach is a balanced one," said Commission spokeswoman Pia Ahrenkilde Hansen.

Cutting interest rates to a new record low of 0.5 percent would show investors the ECB is concerned about the poor state of the bloc's economy, but the Frankfurt-based bank faces a difficult balancing act accommodating a more resilient Germany.   Continued...

People line up at an employment office in Badalona, near Barcelona, April 25, 2013. REUTERS/Albert Gea