Europe News

Euro zone inflation tops forecasts, unemployment stuck at 12%


Euro zone inflation remained unchanged at 0.8 percent in February, above analyst expectations of 0.7 percent, while unemployment in the region remained stuck at 12 percent, new figures showed on Friday.

The stable inflation figure number takes the pressure off the European Central Bank, as falling inflation has fueled worries about whether the euro bloc could suffer deflation, potentially de-railing economic growth.

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The euro hit its highest level against the dollar in 2014 this year on the news.

Separate data from the European Union Statistics Office showed the unemployment rate in January was unchanged from December, meaning euro zone unemployment has remained close to a record high of 12 percent for the fourth month running.

"I think it definitely takes some pressure of the ECB and from a market the risk is they do something very timid and I think the euro's reaction is understandable," said Jens Nordvig, head of fixed income research Americas & Global Head of currency strategy Nomura.

"They can enhance the forward guidance. There has been a lot of talk about whether they sterilize these bond purchases, so that would be a back door way of doing something, but not a very powerful signal," he said.

ECB President Mario Draghi said the central bank had not changed interest rates last month because of the need to have more information about the economic recovery.

Markets are poised for a potential move in March, when the updated inflation forecasts from ECB staff are due, but the data has signaled

"Overall, we believe the ECB as a whole is quite hesitant on the next step," said Bank of America Merrill Lynch economists led by Ethan Harris.

"We think that the ECB will seek to underpin its conviction of a modest recovery in growth and inflation, strengthening its forward guidance with an extension of three month repo operation into 2016," they added.

By CNBC's Jenny Cosgrave: Follow her on Twitter @jenny_cosgrave