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The Euro sculpture in front of the headquarters of the European Central Bank in Frankfurt

ALEX GRIMM

Euro zone inflation rose much more than expected this month and the unemployment rate reached 10 per cent in February, data showed, highlighting the fragility of economic recovery.

Inflation in the 16-country area was 1.5 per cent year-on-year, the highest since December 2008 and up from 0.9 per cent in February, the European Union statistics office said.

But economists played down any impact from faster price growth on the European Central Bank's monetary policy, saying the increase resulted mainly from energy costs and should be temporary.

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Eurostat's flash estimate for inflation, which contained no monthly figure or any breakdown, compared with the 1.1 per cent price growth expected on average by analysts polled by Reuters.

The March figure was lower than the ECB's target of inflation just below 2.0 per cent. Analysts believe the bank will leave its interest rates unchanged until late 2010 or 2011.

"March's increase in euro zone inflation was related mainly to energy effects and should be short-lived," Jennifer McKeown of Capital Economics said.

Howard Archer, of IHS Global Insight, said higher food prices were also a factor and inflationary pressures were likely to remain muted.

"Despite the marked rise in ... inflation in March, the outlook still looks pretty benign. Oil prices bottomed out in February 2009, so the upward impact from unfavourable energy base effects should increasingly wane barring a sharp rise in oil prices over the coming months," he said.



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The euro zone's 10.0 per cent jobless rate in February was the highest since August 1998 and in line with market expectations. A month earlier, unemployment was at 9.9 per cent.

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The figure pointed to only subdued recovery from the worst economic crisis in decades, with high unemployment curbing consumer spending that is key to reviving economic growth.

Sluggish private demand also keeps a lid on price growth.

Eurostat said 15.749 million people were unemployed in February in the euro zone, an increase of 61,000 from the previous month. Since February 2009, some 3.1 million people have lost their jobs in the currency area.

Unemployment in the whole 27-country European Union was 9.6 per cent, up 0.1 point from January.

Unemployment is a lagging indicator as the job market is slow to react to economic developments. Analysts expect the euro zone jobless rate to peak around 11 per cent in 2010.

The lowest jobless rate among euro zone countries was in the Netherlands, at 4.0 per cent. Austria's rate was 5.0 per cent.

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Spain, hit hard by the collapse of its construction sector, had the highest unemployment at 19.0 per cent.

Germany, the euro zone's biggest economy, registered the smallest increase in unemployment from a year earlier, rising to 7.5 per cent from 7.3 per cent.

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