Euro Zone Jobless Rate Jumps

Jobless rate climbed to 8 percent in December -- the highest in over two and a half years -- while inflation dropped to 1.1 percent, the EU's statistical agency said.

BRUSSELS, Belgium (AP) -- The jobless rate in euro zone countries climbed to 8 percent in December -- the highest in over two and a half years -- while inflation dropped as the economic downturn intensified, the EU's statistical agency said Friday.

Inflation in the 16 nations that use the euro tumbled to an annual rate of 1.1 percent January from 1.6 percent in December, Eurostat said in a first estimate. The dramatic decrease in oil prices from a year ago has been reducing the price index in recent months.

Rising unemployment in the region is the most visible sign of recession as companies cut costs to cope with falling demand. Some 12.47 million people are now seeking work, Eurostat said -- 230,000 more than in November when the rate was 7.9 percent.

The rate last stood at 8 percent in April 2006 before the euro zone economy started to speed up as it exported more to a booming global economy.

Across the entire 27-nation European Union, unemployment was 7.4 percent in December, up slightly from 7.3 percent a month earlier.

Spain now has the highest proportion of jobseekers in both the EU and the euro area, with the rate hitting 14.4 percent in December. The collapse of a construction boom and falling tourist numbers have hit two of the country's biggest sectors.

The European Commission forecasts that some 3.5 million jobs will disappear across the EU this year as the economy shrinks. It says unemployment could go over 10 percent by next year.

This will increase welfare costs and reduce tax revenues for most European governments.