Eurozone Sees Inflation, Falling Unemployment

Two indicators showed renewed strength in European economies, as the Eurozone saw both an end to deflationary trends and a rise in employment.

Prices rose 0.3% in May in the Eurozone, according to a study by Eurostat. Services saw a 1.3% increase in prices, while core inflation rose 0.9%, an increase from 0.6% in April.

Two indicators showed renewed strength in European economies, as the Eurozone saw both an end to deflationary trends and a rise in employment.

Prices rose 0.3% in May in the Eurozone, according to a study by Eurostat. Services saw a 1.3% increase in prices, while core inflation rose 0.9%, an increase from 0.6% in April.

The increase in prices came despite a fall in energy prices, which fell 5% in May on a year-over-year basis, although that decline is less extreme than in April, when prices fell 5.8% year-over-year. Energy was the only component of the Eurostat’s inflation measurement to see a decline in price.

The two-month accelerating trend in inflation marks an end to fears of deflation, which economists now see as largely unlikely in the region thanks to aggressive efforts to boost the region’s economy. The European Central Bank’s president Mario Draghi, who resisted fights against a quantitative easing program from Germany last year, and has since initiated the largest bond-buying program Europe, has ever seen, with 1.1 trillion euros set to be used to buy bonds in the region, spearheads those efforts.

Unemployment Falls

While inflation is rising, unemployment is falling in the Eurozone, with the total unemployment rate falling to 11.1% on a seasonally adjusted basis in April. That is down from 11.2% in March, with the lowest unemployment rates in the euro area seen in Germany and Luxembourg. Germany’s unemployment rate fell 4.7%, the lowest rate in 24 years.

However, high unemployment remains a problem in Mediterranean countries, with Greece’s unemployment still the highest in the Eurozone at a 25.4% rate, followed closely by Spain (22.4%). Portugal and Cyprus have seen more moderate unemployment rates, at 13% and 15.6% respectively.

While the improvement in the unemployment rate is a welcome sign, the Eurozone still has higher unemployment than at any point before the global financial crisis, and a higher rate than in 2009, 2010, or 2011. Unemployment peaked in the Eurozone in the middle of 2013, at about 12%.

Youth unemployment remains a chronic problem in the Eurozone, with youth unemployment remaining 22.3% in the Eurozone, and remaining over 50% in Greece as well as near 50% in Spain (49.6%), Croatia (45.5%), and Italy (40.9%). The European Union has launched several work programs targeting young Europeans and college graduates, but they have had minimal effect on youth unemployment.