Sharp euro zone inflation fall, joblessness point to ECB rate cut

Inflation in the euro zone has fallen to a three-year low and unemployment is at a new record, data showed on Tuesday, raising expectations of an interest rate cut by the European Central Bank to reignite the stagnant economy.

Inflation dropped to a surprise 1.2 percent in April, the lowest level since February 2010 and the biggest monthly drop in more than four years, the EU's statistics office Eurostat said, reflecting the state of an economy in recession.

That put the annual rate of increase in the cost of living well below the ECB's target of close to, but below 2 percent, while economists polled by Reuters had expected inflation to be at 1.6 percent for the month.

With Eurostat figures also showing euro zone unemployment at a record 12.1 percent of the working population in March, economists believe the ECB will lower rates as early as this week to stimulate an economy that has slipped into its second recession since 2009.

Highlighting the impact of the euro zone's debt crisis, some 19.2 million people are now out of work in the bloc, the highest level since the euro zone's inception in 1999 and also since Eurostat began monitoring the group of countries in 1995.

A majority of economists expect a 25 basis point cut this Thursday, according to a Reuters poll last week, to take the bank's main refinancing rate to a record low of 0.5 percent.

Data released on Monday showing a fall in confidence in the euro zone's economy in April also strengthened the case for a cut in interest rates, economists said.

(Reporting by Robin Emmott; editing by Rex Merrifield)