Published: Friday, 31 Jul 2009 | 5:36 AM ET

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Euro zone unemployment rose to a 10-year high of 9.4 percent in June, though the level was less than expected, while July inflation moved much further into negative territory than forecast, data showed on Friday.

The jobless rate in the 16-country euro zone edged up from May's downwardly revised 9.3 percent as 158,000 people lost their jobs, European Union statistics office Eurostat said.

With the preliminary reading of May unemployment at 9.5 percent, economists had expected June's figure to be 9.7 percent. Still, the number was the highest since June 1999.

Eurostat said separately that consumer prices in the euro zone dropped 0.6 percent year-on-year in July, the second month of negative inflation since the creation of the currency area in 1999.

In June, inflation was -0.1 percent. Analysts had expected July inflation to be -0.4 percent as energy and food were more expensive a year ago and the economic crisis has eroded firms' pricing power.

Eurostat gave no monthly figure or a more detailed breakdown, which will be published in mid-August.

The lower-than-expected unemployment coupled with a significant fall in prices could mean more purchasing power for consumers — welcome news for efforts to fight the worst economic crisis since World War Two.

Negative inflation could bolster the European Central Bank's resolve to fight recession with unconventional monetary easing.

AP

The ECB wants annual price gains to be just below 2 percent over the medium term and to avoid deflation, which it defines as a prolonged and widespread decline in prices coupled with consumers' expectations of further falls.

The ECB has said consumer prices were likely to fall for a few months in mid-year because of comparison effects with record high oil and food costs a year before, but that price growth would resume later.

The depth of recession was underlined by Eurostat's calculation that 3.17 million people in the euro zone had lost their job since June 2008, when the unemployment rate was 7.5 percent.

The euro zone's economy shrank 2.5 percent quarter-on-quarter in the first three months of 2009, with a smaller contraction expected in subsequent quarters and a modest revival in 2010.

Eurostat said that since June 2008, the smallest increases in unemployment were registered in Germany, from 7.3 percent to 7.7 percent, and the Netherlands, from 2.7 percent to 3.3 percent.

In Spain, hit by the collapse of the construction sector, the jobless rate soared to 18.1 percent, the highest in the euro zone, from 11 percent over the period.

In the wider, 27-nation European Union, the unemployment rate was 8.9 percent in June, up from 8.8 percent in May and 6.9 percent a year earlier.

Since June 2008, more than 5 million people had lost their job in that bloc, highlighting a severe crisis in non-euro countries such as the Baltic republics and Hungary.

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