Euro zone Aug economic sentiment eases but selling price expectations at record high

Euro zone economic sentiment has eased more than expected in August from a record high in July, hit by a sharp drop in optimism in France and the Netherlands, while selling price expectations in industry peaked, signalling inflationary pressure.

The European Commission’s economic sentiment index, released on Monday, eased to 117.5 in August from an all-time high of 119.0 in July. Optimism deteriorated in all major sectors — in industry to 13.7 from 14.5, in services to 16.8 from 18.9 and among consumers to -5.3 from -4.4.

Still, selling price expectations in industry, heralding likely future inflationary pressures, hit a record in August.

Also among consumers, inflation expectations rose to 31.1 in August from 30.0 in July, though they were still well below the all-time high of 38.7 from 2001.

German inflation already outpaced wage growth in the second quarter, data showed on Monday, as rising price pressures caused by an economic recovery and supply bottlenecks in manufacturing reduced the spending power of consumers.

Still, hiring plans in construction, retail trade and services drove employment expectations up by 1.2 points to 112.8 in the euro zone, its highest level since November 2018, signalling more spending power and consumer demand ahead.

Overall, France recorded the sharpest drop in economic sentiment of 4.5 points, followed by the Netherlands. Italy and Spain were also weaker. Sentiment in the biggest euro zone economy, Germany, eased only slightly by 0.3 points.