Euro zone inflation slowed in August, pointing to steady interest rates well into 2011, but unemployment remains high and uneven across the region, underlining the two-speed recovery, data showed today.
European Union statistics office Eurostat reported that inflation in the euro zone fell to 1.6 per cent year-on-year in August from 1.7 per cent in July, in line with economists' expectations and comfortably below the European Central Bank's target of just under 2 per cent.
No breakdown of the inflation figure is available until next month, but economists said the easing was most likely a result of cheaper energy and lower core inflation, which excludes the more volatile energy and food prices.
Eurostat said unemployment in the euro zone was unchanged at 10 per cent of the workforce for the fifth month running -- a factor economists said was undermining household demand.
Inflation is also likely to be curbed by the still low utilisation of production capacity and by fiscal tightening, as governments try to shore up public finances in the wake of the recession to win back market confidence in their policies.
The ECB meets on interest rates on Thursday and economists expect it will keep them at the historic low of 1 per cent.
Economists said the persistently flat euro zone unemployment rate of 10 per cent, near a 12-year high despite strong growth in the second quarter, masked diverging trends in the single currency area.
While unemployment in Europe's powerhouse Germany has been on the decline for 14 months in a row, and fell to 7.6 per cent in August, the opposite trend can be seen in Spain and Ireland -- where it rose to 20.3 and 13.6 per cent in July respectively.
Germany's economy expanded 2.2 per cent quarter-on-quarter in the April-June period while Spain grew 0.2 per cent.
Economists note, however, that unemployment in Europe is slow to react to a pick-up in economic growth, which in the second quarter was 1 per cent quarter-on-quarter, but is seen slowing to 0.6 per cent in the third quarter.