Eurozone economic sentiment extends recovery in August as consumer inflation expectations pick up
Key Takeaways
- •The euro area economic confidence indicator rose to 98.4 in August, beating the 97.5 forecast and the prior month's revised 97.1, but remained below its long-term average of 100.
- •Services confidence came in at 5.8 versus 4.9 expected and industrial confidence improved to -5.3 from -6.1, while final consumer confidence held at -15.5, up from -15.9 previously.
- •Consumer inflation expectations increased to 33.0 from 30.4, the first rise since April, although selling price expectations declined to 16.4 from 17.8.
- •The European Central Bank is widely expected to raise key interest rates again in September, extending a tightening cycle that began in July 2022.
- •Attention in coming weeks turns to the flash euro area inflation estimate for August and the ECB's September meeting, which will include updated staff economic projections.
Euro area economic sentiment extended its recovery at the tail end of the summer, with the headline economic confidence reading beating forecasts and better confidence levels in both manufacturing and services providing support. The figures come from the European Commission's monthly business and consumer surveys, which serve as one of the earliest available gauges of the mood across the single-currency bloc between official growth and inflation releases, and which rate-setters and market watchers use to track the cycle between hard data points. At 98.4, the headline indicator still sits just below its long-term average of 100. The improvement offers at least some good news for a region still facing a testing time, with the major economies of the euro area contending above all with the battle against inflation.
August survey data
- Consumer confidence (final): -15.5 vs -15.5 preliminary; prior -15.9
- Economic confidence: 98.4 vs 97.5 expected; prior 96.9, revised to 97.1
- Industrial confidence: -5.3 vs -5.2 expected; prior -6.1
- Services confidence: 5.8 vs 4.9 expected; prior 4.7, revised to 5.1
Against that backdrop, the price data accompanying the survey report carries a bit of a warning indicator. Consumer inflation expectations have picked up again, rising to 33.0 from 30.4 previously — the first time since April that the indicator has moved higher. These readings are tracked closely by policymakers because persistently elevated expectations among households can, over time, feed into wage bargaining and price-setting behaviour across the economy. Selling price expectations, however, at least continue to fall, dropping to 16.4 from 17.8 previously.
In any case, the European Central Bank (ECB) is already widely expected to raise key interest rates again in September, extending a tightening cycle that began in July 2022. The central bank has to position itself better in case it needs to tighten policy by much more in order to deal with more stubborn inflation pressures heading into the turn of the year. And as the US-Iran conflict drags on for longer, the odds of that are only increasing day by day. Attention in the coming weeks turns to the flash euro area inflation estimate for August and the ECB's September gathering, which will also bring updated staff economic projections for officials to weigh alongside the survey picture.
Source: ForexLive
