Inflation and employment data heap pressure on ECB

The euro-zone's unemployment rate was revised up from 10.9% to 11.0% in July and it remained at that level in August, well above its 1999-2007 average of 8.8%. Among the region's largest economies, the unemployment rate fell by 0.1 percentage points in Germany, Italy and Spain, but rose in France. 

While the euro-zone's unemployment rate has edged down over the past couple of years, progress has been slow. And surveys of employment intentions suggest that the labour market recovery will continue at a sluggish pace. In all, today's data provide further justification for the ECB to increase the scale of its QE programme. The large amount of spare capacity in the labour market will continue to bear down on core price pressures, says Capital Markets. 

September's 0.1% annual fall in consumer prices was weaker than the Bloomberg consensus forecast, although expectations are likely to have been revised lower after yesterday's weaker-than-expected inflation data from Germany and Spain. Today's breakdown of the euro-zone inflation rate showed that the energy component fell deeper into deflation, while the core inflation rate remained at 0.9%. 

The return of inflation to negative territory in the euro-zone will heap additional pressure on the ECB to up the scale of its asset purchase programme, says Capital Economics in a report on Wednesday.