Eurozone inflation slowed more than expected in August and inflation expectations plunged but economic sentiment also worsened more than forecast, underlining concerns the area may be heading for a technical recession.
The European Union's statistics office, Eurostat, estimated consumer prices grew by 3.8 per cent year-on-year this month, down from an all-time peak of 4 per cent in July -- a more pronounced slowdown than the 3.9 per cent expected by markets.
The Eurostat estimate for the 15 countries sharing the single currency does not contain a monthly figure or a detailed breakdown, which will be available on September 16th.
Separately, a monthly European Commission survey showed inflation expectations among consumers plunged to 22 points in August from 30 in July and below the long-term average of 23.
This is likely to please the European Central Bank, which wants inflation to be just below 2 per cent and raised interest rates by 25 basis points to 4.25 percent in July to better anchor inflation expectations amid soaring food and fuel prices.
ECB Governing Council member Klaus Liebscher said earlier today the bank would pay special attention "to keep inflation expectations in tune with the target of price stability".
The ECB's July rate rise came despite growing signs that the economy of the single currency area is slowing sharply -- a trend again confirmed by the sentiment data for August in the Commission survey.
The economic sentiment indicator for the euro zone fell to 88.8 points this month, from 89.5 points in July, well below economists' expectations of a decline only to 89.1 points.
The decline was driven mainly by falling confidence in industry and retail trade, despite better sentiment among consumers and in the services sector.
The falling sentiment signals that the euro zone economy may contract in the third quarter after it shrank in the second, adding up to a technical recession, defined as two consecutive months of negative gross domestic product growth.
Euro zone unemployment remained unchanged at 7.3 per cent in July, Eurostat data showed, for the fourth month running.
Reuters