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| Inflation in Euro Zone Falls as Unemployment Stays Unchanged | Inflation in Euro Zone Falls as Unemployment Stays Unchanged |
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| BRUSSELS — Europe’s labor market remained in the doldrums in December, while the inflation rate ticked back down to the same level that recently led the European Central Bank to cut interest rates, official data showed Friday. The reports suggested that the central bank will be under pressure to provide more monetary stimulus to keep a nascent recovery alive. | BRUSSELS — Europe’s labor market remained in the doldrums in December, while the inflation rate ticked back down to the same level that recently led the European Central Bank to cut interest rates, official data showed Friday. The reports suggested that the central bank will be under pressure to provide more monetary stimulus to keep a nascent recovery alive. |
| European stocks fell after the reports, while the euro was down slightly against the dollar. Wall Street dropped at the Friday open and was set for its first monthly decline since August. | |
| The broad European stock market fell about 1.3 percent in afternoon trading, led by an almost 2 percent decline in Germany. Trading in index futures suggested stocks would fall at the opening bell in New York. | The broad European stock market fell about 1.3 percent in afternoon trading, led by an almost 2 percent decline in Germany. Trading in index futures suggested stocks would fall at the opening bell in New York. |
| Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, said investors were pulling back from stocks and emerging market investments. | Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, said investors were pulling back from stocks and emerging market investments. |
| The jobless rate in the euro zone was 12 percent, unchanged since October after a revision of prior months’ data, Eurostat, the statistical agency of the European Union, reported from Luxembourg. | The jobless rate in the euro zone was 12 percent, unchanged since October after a revision of prior months’ data, Eurostat, the statistical agency of the European Union, reported from Luxembourg. |
| The inflation rate came in at 0.7 percent in January, Eurostat said in its initial estimate, significantly lower than economists had expected and slowing from 0.8 percent in December. The “core” rate, which strips out energy, food, alcohol and tobacco, was 0.8 percent, up from 0.7 percent in December. | The inflation rate came in at 0.7 percent in January, Eurostat said in its initial estimate, significantly lower than economists had expected and slowing from 0.8 percent in December. The “core” rate, which strips out energy, food, alcohol and tobacco, was 0.8 percent, up from 0.7 percent in December. |
| Mario Draghi, the president of the E.C.B., and his colleagues on the central bank’s Governing Council, surprised investors in November by cutting the euro zone’s main interest rate by a quarter of a point to a record low 0.25 percent, amid concern that Europe might be headed toward a Japan-style deflationary quagmire. The central bank acted after the euro zone inflation rate fell to 0.7 percent; the bank tries to hold inflation at just below 2 percent. | Mario Draghi, the president of the E.C.B., and his colleagues on the central bank’s Governing Council, surprised investors in November by cutting the euro zone’s main interest rate by a quarter of a point to a record low 0.25 percent, amid concern that Europe might be headed toward a Japan-style deflationary quagmire. The central bank acted after the euro zone inflation rate fell to 0.7 percent; the bank tries to hold inflation at just below 2 percent. |
| Some economists have argued that falling inflation in the euro zone, coming after five years of recession or very slow growth, means that the currency bloc faces an acute risk of deflation — a sustained and broad fall in prices that can destroy the profits of companies and the jobs they provide. | Some economists have argued that falling inflation in the euro zone, coming after five years of recession or very slow growth, means that the currency bloc faces an acute risk of deflation — a sustained and broad fall in prices that can destroy the profits of companies and the jobs they provide. |
| Other economists believe that the slowing inflation is merely as a sign that wages are falling in countries like Spain and Greece, where labor costs had become too high for companies to compete in the international marketplace. | Other economists believe that the slowing inflation is merely as a sign that wages are falling in countries like Spain and Greece, where labor costs had become too high for companies to compete in the international marketplace. |
| Mr. Draghi, who has cautioned that the euro crisis will not be over until the labor market begins to recover, has more recently sought to play down the risk of deflation, perhaps to hold in reserve the possibility of a last major rate cut, to zero. | Mr. Draghi, who has cautioned that the euro crisis will not be over until the labor market begins to recover, has more recently sought to play down the risk of deflation, perhaps to hold in reserve the possibility of a last major rate cut, to zero. |
| The 0.7 percent inflation rate likely came as a surprise to the European Central Bank. Mr. Draghi had played down the significance of the 0.8 percent December figure, saying that a statistical “quirk” in the German services data for that month had pushed it lower and that January would likely show more upward pressure on prices. | The 0.7 percent inflation rate likely came as a surprise to the European Central Bank. Mr. Draghi had played down the significance of the 0.8 percent December figure, saying that a statistical “quirk” in the German services data for that month had pushed it lower and that January would likely show more upward pressure on prices. |
| Despite continuing deflation worries, Carsten Brzeski, an economist at ING Group, predicted that the central bank would take no additional action when its Governing Council meets Thursday. For one thing, he noted, “the macroeconomic situation hasn’t changed dramatically” since the council last met in early January, and there are enough hopeful signs to allow policy makers to bide their time. | Despite continuing deflation worries, Carsten Brzeski, an economist at ING Group, predicted that the central bank would take no additional action when its Governing Council meets Thursday. For one thing, he noted, “the macroeconomic situation hasn’t changed dramatically” since the council last met in early January, and there are enough hopeful signs to allow policy makers to bide their time. |
| Also, Mr. Brzeski said, the E.C.B. is awaiting a ruling by a top German court on the constitutionality of its bond-buying program, “and they don’t want to engage in any tricky stuff before the verdict.” | Also, Mr. Brzeski said, the E.C.B. is awaiting a ruling by a top German court on the constitutionality of its bond-buying program, “and they don’t want to engage in any tricky stuff before the verdict.” |
| The specter of deflation poses a particularly thorny problem for a central bank, because nominal interest rates, the usual tool for addressing price levels, cannot go below zero. | The specter of deflation poses a particularly thorny problem for a central bank, because nominal interest rates, the usual tool for addressing price levels, cannot go below zero. |
| Mr. Draghi has suggested that the E.C.B. is considering unconventional tools, including instituting negative deposit rates, in effect penalizing financial institutions for keeping funds at the E.C.B., in the hope that it would lead them to put more money into the economy. | Mr. Draghi has suggested that the E.C.B. is considering unconventional tools, including instituting negative deposit rates, in effect penalizing financial institutions for keeping funds at the E.C.B., in the hope that it would lead them to put more money into the economy. |
| The E.C.B. on Wednesday reported slowing growth in the broad money supply and a decline in loans to the private sector, indicating that credit is not reaching the real economy. | The E.C.B. on Wednesday reported slowing growth in the broad money supply and a decline in loans to the private sector, indicating that credit is not reaching the real economy. |
| A report Friday from the German Federal Statistical Office showed that retail sales in Germany fell sharply in December, dropping 2.5 percent, after a 0.9 percent rise in November. | A report Friday from the German Federal Statistical Office showed that retail sales in Germany fell sharply in December, dropping 2.5 percent, after a 0.9 percent rise in November. |
| Other recent data have painted a more positive picture of the economic outlook. Consumer and business confidence have been relatively strong, and a January survey of European purchasing managers suggested industrial activity in the euro zone was at its highest level since mid-2011. | Other recent data have painted a more positive picture of the economic outlook. Consumer and business confidence have been relatively strong, and a January survey of European purchasing managers suggested industrial activity in the euro zone was at its highest level since mid-2011. |
| On the jobs front, the unemployment rate for the entire 28-nation European Union fell slightly, to 10.7 percent in December from 10.8 percent a month earlier. Eurostat estimated that 26.2 million people in the European Union were looking for work last month. | On the jobs front, the unemployment rate for the entire 28-nation European Union fell slightly, to 10.7 percent in December from 10.8 percent a month earlier. Eurostat estimated that 26.2 million people in the European Union were looking for work last month. |
| “There’s some stabilization in the unemployment rate, so at least it’s not getting worse,” Mr. Brzeski said. “But this is a strong reminder that this a very fragile recovery, one that is anything but self-sustaining.” | “There’s some stabilization in the unemployment rate, so at least it’s not getting worse,” Mr. Brzeski said. “But this is a strong reminder that this a very fragile recovery, one that is anything but self-sustaining.” |
| He noted that the labor market was a lagging indicator, meaning that hiring tends to pick up only after the economy is on a sound footing. | He noted that the labor market was a lagging indicator, meaning that hiring tends to pick up only after the economy is on a sound footing. |
| “We need at least 1 percent to 2 percent annualized growth to create jobs,” he said, “and we just haven’t been getting it.” | “We need at least 1 percent to 2 percent annualized growth to create jobs,” he said, “and we just haven’t been getting it.” |