The unemployment rate in the euro area jumped to its highest level since November 2005, as companies shed staff in March amid severe recession. Adding more pressure on the European Central Bank, annual inflation stayed at a record low in April.

Thursday, the statistics office of EU said the unemployment rate was 8.9% in March. This was higher than February's revised 8.7% and the 7.2% rate logged for March 2008. The March unemployment rate came in above the consensus forecast of 8.7%.

According to Eurostat's estimate, unemployed people in March increased 419,000 from February and 2.81 million from March 2008.

For the EU 27 as a whole, the jobless rate was 8.3%, up from 8.1% in February. Compared to February, the number of persons unemployed increased 626,000 in March.

Further, the Netherlands reported the lowest unemployment rate amongst the member states in March, while Spain witnessed the highest rate of 17.4%.

On a year-over-year basis, only three nations in EU 27 registered decreases in jobless rates, while in the Netherlands, the jobless rate held steady. All the other 23 nations showed increases in their unemployment rates.

Elsewhere, a report from the Federal Labor Agency showed that the jobless rate in the largest Eurozone economy rose to 8.3% in April from 8.1% in March. In April, the number of unemployed persons increased by a seasonally adjusted 58,000 in Germany.

In a separate communiqué, a flash estimate from the Eurostat showed annual inflation in EU 16 stood at 0.6% in April, the same as in March. This was the lowest rate since the launch of euro ten years ago. The central bank targets inflation rate of below, but close to 2% over the medium term.

The statistical office is set to release the final numbers on May 15.

In April, the ECB had lowered its key interest rate to a fresh low of 1.25%. Given the current inflation level, economists now expect the central bank to cut the main refinancing rate to 1% in early May.

Dresdner Kleinwort's economist, Rainer Guntermann said this stable inflation does not mean that inflation is bottoming out but rather taking a break before sliding further in the months to come. Though below zero inflation rates remain on the agenda for the summer, the 'technical' outlook for consumer prices signals that headline rate should climb in the course of the second half.

Economist said breather in the inflation trend is unlikely to prevent the central bank from implementing 25 basis points cut next month and extending the maturity of its refinancing operations. However, further unconventional measures along with these steps will depend on medium-term inflation expectations. Economist said these remain stable despite the expected near-term see-saw pattern in inflation.

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