Consumer prices in the eurozone fell year-on-year for a fifth straight month in October, data showed, but they are expected to start growing in November as oil costs rise above year-earlier levels. The European Union's statistics agency said consumer prices in the 16-country euro area fell 0.1 percent year-on-year, in line with the consensus in a Reuters poll of economists, after a 0.3 percent decline in September.
"Due to a powerful, unhelpful base effect, energy will push eurozone inflation in positive territory in November," said Marco Valli, economist at UniCredit. The agency, Eurostat, will give a month-on-month inflation figure and a more detailed breakdown on November 16. Economists said that apart from oil, more expensive food was likely to add to overall price rises in the coming months.
The European Central Bank wants inflation to be just below 2 percent, and economists said that in the absence of inflationary pressures it will keep interest rates at record lows of 1 percent well into 2010. The Eurostat data showed that no strong inflationary pressures were likely to materialise soon as unemployment in the eurozone in September reached 9.7 percent of the workforce - its highest level since January 1999. "In the first quarter of next year inflation should settle at around 1 percent," said Rainer Guntermann, economist at Commerzbank. "Conditions in the real economy, such as the high unemployment rate of 9.7 percent in September, persistent wage pressure, a large capacity surplus ... should prevent further sustained rises," he said.
The number of people without jobs rose by 184,000 in September to 15.324 million in the eurozone and by 286,000 in the whole 27-nation European Union to 22.123 million people, or 9.2 percent of the workforce. "As employment lags activity, the unemployment rate is forecast to increase further, ending the year above 10 percent," said Clemente de Lucia, economist at BNP Paribas. "Next year it should increase further, peaking at around 11 percent."
Economists noted that unemployment was growing more slowly than at the start of the year but said the rising numbers of jobless would dampen wage growth, curbing domestic demand. "The rising unemployment rate will be a drag on consumer spending for some time," said Nick Kounis, economist at Fortis.