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Economy in Brief

Inflation in the Euro Area, the Unemployment Rate in Germany and the ECB
by Louise Curley July 1, 2008

The European Central Bank (ECB) meets on this Thursday, July 3rd. It is expected to raise the base rate of 4% by 25 basis points. Yesterday, Eurostat, the European Union's Statistical office announced that inflation data for the Euro Area as a whole was 4% in June, fully 2% above the ECB's target of 2%. June data for the individual countries of the Euro Area are not yet available, but the first chart showing steady rises in the rates of inflation in Germany, France, Italy and Spain from mid 2007 through May of this year is enough to suggest action by the central bank may be forthcoming.

If the ECB were looking for additional data to shore up their decision to raise rates, they might consider the decline in Germany's unemployment rate, released today. Instead of rising as expected, the rate of registered unemployment fell to 7.8% in June from 7.9%. This is the lowest rate of unemployment in Germany since 2001, as can be seen in the second chart, showing the registered rate of unemployment together with the widely used International Labor Organization ILO rate. The registered rate of unemployment is typically higher than that of the (ILO) as the former includes those with a new job, but not yet at work and those working less than 15 hours a week, both of which are excluded in the ILO definition of unemployment.

EUR0 AREA INFLATION
 (y/y % change in CPI)  
Jun 08 May 08  Apr 08  Mar 08  Feb 08    Jan 08 2007 2006 2005
Euro Area 4.0 3.7 3.3 3.6 3.3 3.2 2.1 2.2 2.2
  Germany -- 3.1 2.6 3.3 3.0 2.9 2.2 1.8 1.9
  France -- 3.7 3.4 3.5 3.2 3.2 1.6 1.9 1.9
  Italy -- 3.7 3.6 3.6 3.1 3.1 2.0 2.2 2.2
  Spain -- 4.7 4.2 4.6 4.4 4.4 2.8 3.6 3.4
UNEMPLOYMENT RATES (%) GERMANY
 Registered  7.8 7.9 7.9 7.9 8.0 8.2 9.0 10.8 11.7
 ILO -- 7.4 7.4 7.4 7.6 7.7 9.0 10.8 11.7
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