Tame inflation no comfort to euro zone's record jobless

A woman pushes a shopping trolley to a supermarket in Lisbon August 30, 2011.

BRUSSELS (Reuters) - Inflation in the euro zone remained steady for the third straight month in July, offering little comfort to consumers at a time when the number of people out of work continues to climb and the unemployment rate is at a record high.

Consumer prices in the 17 nations sharing the euro rose 2.4 percent in July on an annual basis, the EU's statistics office Eurostat said on Tuesday, maintaining a level first touched in May as Brent crude fell sharply and brought prices down.

The bloc's jobless rate hit 11.2 percent in June, Eurostat said in a separate report, with unemployment nearing 25 percent in Spain, the latest economy to become a flashpoint in the 2-1/2 year debt crisis that some worry could break up the euro zone.

The euro zone is heading for its second recession in just three years in 2012 in a slump that is reverberating around the world. Showing the depths of the euro zone's troubles, Spanish retail sales fell for a 24th straight month in June while capital flight gathered pace in May.

Even in Germany, the bloc's largest and strongest economy, the number of people out of work rose for a fourth month running in July and retail sales also fell in June.

Italian Prime Minister Mario Monti, speaking before a trip to France, tried to inject some optimism on Tuesday, saying "some light is appearing at the end of the tunnel."

But short of a major policy move at the European Central Bank's August meeting on Thursday, the mood at businesses and among investors could still worsen.

European Central Bank President Mario Draghi surprised investors last week by saying the bank was "ready to do whatever it takes to preserve the euro", but it is unclear what, if any, new steps will be announced.

"If growth indicators continue to head south and market stress intensifies, the ECB may need to deliver another rate cut," said Marco Valli, chief euro zone economist at UniCredit in Milan. "But conventional monetary policy tools have been exhausted, so what the euro zone needs is something much more effective," Valli said.

Nineteen out of 24 money market traders surveyed by Reuters said they expect the ECB to restart its bond-buying programme with purchases of Spanish and Italian debt, with 10 out of 19 expecting it to announce this on Thursday.

But such a move is not certain, and the ECB may hold off to intervene in tandem with the euro zone's EFSF rescue fund.

The lack of price pressures gave the ECB room to cut its interest rate to a record low of 0.75 percent in July.

The ECB's August meeting, typically a low-key affair during the European summer, will be intensely watched for any signs that Draghi is willing to do more to help reduce the high cost of money for governments and banks in Spain and Italy.

But rising crude prices could reduce the room for rate cuts, economists say, as inflation cools more slowly.

Brent crude is back to around $105 a barrel after dropping to as low as $90 a barrel in late June and oil prices continue to be supported by worries about supply from sanctions-hit Iran. Iran and the West are at odds over Tehran's nuclear ambitions, resulting in sanctions that have cut the flow of Iranian oil.

FRENCH JOB LOSSES

Static, rather than falling, consumer prices mixed with rising unemployment are reducing household demand and having a knock-on effect on companies' ability to invest and grow.

Another 123,000 people were out of work in euro zone in June, Eurostat said, putting the unemployment rate at 11.2 percent of the working population, a new euro-era high. That number was the same as May, after Eurostat revised up the data for that month from an earlier reading of 11.1 percent.

But the number also disguised wide divergences, with unemployment as low as 4.5 percent in Austria and 24.8 percent in Spain, the highest level in the bloc.

Spain slid deeper into recession in the second quarter as a tough new round of austerity to head off the budget crisis that threatens the euro affected both overall demand and the prices consumers have to pay for goods.

France, the euro zone's second largest economy, also saw unemployment rise in June to 10.1 percent.

France's biggest phone equipment supplier, Alcatel-Lucent (ALUA.PA), and carmaker PSA Peugeot Citroen (PEUP.PA) have both announced major job cuts as they struggle with losses.

Economists see signs that the strong German economic engine of growth is succumbing to the weakening effects of the crisis. More Germans were without a job in July, although the employment rate was stable at 6.8 percent.

"The labour market has been Germany's active immunisation against the ongoing euro zone crisis," ING economist Carsten Brzeski wrote in a note to clients. "However, signs that this immunisation is fading away are hard to miss."

(Reporting by Robin Emmott; editing by Rex Merrifield/Jeremy Gaunt)