September 24, 2020

Prices plummet in the euro zone due to the pandemic and put pressure on the ECB to apply an expansionary monetary policy

In August, the month in which the covid-19 containment measures continued to be lifted, Eurostat estimates that year-on-year inflation was -0.2%, below the 0.4% in July, according to a preliminary estimate by the statistical office of the European Union.

It is the first time that prices have entered negative territory since 2016. “Those for August are the lowest levels,” argues Gregory Claeys, from the Bruegel think tank: “This seems to settle the debate on the short-term effect of the COVID-19 crisis on inflation in the euro area. In my opinion, a very expansionary policy by the ECB2 is clearly justified.

Regarding the main components of inflation in the euro area, Eurostat estimates that food, alcohol and tobacco had the largest increases in August (1.7%, compared to 2.0% in July); followed by services (0.7%, compared to 0.9% in July); non-energy industrial goods (-0.1%, compared to 1.6% in July) and energy (-7.8%, compared to -8.4% in July).

For its part, core inflation, which excludes the effect of energy and fresh food as they are the most volatile components, stood at 0.6% in August, seven tenths below the 1.3% recorded in July . Eurostat will publish the complete harmonized index of consumer prices (HICP) for the month of August on September 17, reports Efe.

Among the countries whose data were available to Eurostat, the largest price increases occurred in Slovakia (+ 1.5%) and Lithuania (+ 1.2%), while the steepest decreases were in Cyprus (-2.9 %) and Greece (-2.1%). In Spain, the harmonized inflation rate stood at -0.6% in August.

Unemployment rise to 7.9%

In July 2020, a month marked by some relaxation of covid-19 containment measures in many Member States, the seasonally adjusted unemployment rate in the euro area was 7.9%, compared to 7.7% in June 2020, according to Eurostat. The EU unemployment rate at 27, meanwhile, was 7.2% in July 2020, compared with 7.1% in June 2020. The statistical office of the European Union estimates that 15.184 million men and Women in the EU, of whom 12.793 million in the euro area, were unemployed in July 2020. Compared with June 2020, the number of unemployed people increased by 336,000 in the EU and by 344,000 in the euro area.

In July 2020, 2,906 million young people (under 25 years of age) were unemployed in the EU, of which 2,338 million were in the euro zone, Eurostat explains. In July 2020, the youth unemployment rate was 17% in the EU and 17.3% in the euro zone, compared to 16.9% and 17.2%, respectively, in the previous month. Compared to June 2020, youth unemployment increased by 37,000 in the EU and by 29,000 in the euro area.

In July 2020, the unemployment rate for women was 7.5% in the EU, compared to 7.3% in June 2020. The unemployment rate for men was 7% in July 2020, compared to at 6.8% in June 2020.

In the euro area, the unemployment rate for women increased from 8% in June 2020 to 8.3% in July 2020, while it went from 7.5% to 7.6% for men.

These estimates are based on the standard definition of unemployment from the International Labor Organization used globally, which counts as unemployed people without work who have been actively looking for work in the last four weeks and are available to start work in the next two weeks.

The covid-19 outbreak and the measures implemented to combat it have led to a sharp increase in the number of applications for unemployment benefits across the EU, Eurostat explains.

At the same time, a significant part of those who had registered with unemployment agencies were no longer actively looking for a job or were no longer available for work, for example if they had to take care of their children. This leads to discrepancies in the number of registered unemployed and the calculations as unemployed according to the ILO definition.


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