Euro zone inflation slowed further in October, staying well within the European Central Bank's target range, but consumer inflation expectations rose amid upbeat economic sentiment, data showed today.
In its first estimate of price growth in the 12 countries using the euro, the European Union's statistics office said inflation fell to 1.6 per cent year-on-year in October from 1.7 per cent in September. The estimate does not include a month-on-month calculation or a detailed breakdown.
Economists polled by Reuters had expected the annual inflation rate, which the ECB wants to keep below, but close to 2 per cent, to remain unchanged at 1.7 per cent.
While the ECB may be relieved by consumer inflation lying for the second month in a row well within its target range, policymakers are warning that monthly data are volatile.
They still assume that the inflation rate will rise above 2 per cent again next year in an economy running at full tilt where capacity is fast being used up.
Moreover, the retreat is primarily due to lower oil costs, which ECB Executive Board member Lorenzo Bini Smaghi said last week would free up extra consumer spending power and thus potentially boost inflation.
A monthly European Commission survey showed that inflation expectations among consumers have increased to 26 points in October from 24 points in September, while producer price inflation expectations have eased to 12 from 13 points.
The rise in consumer inflation expectations, an indicator frequently cited by ECB President Jean-Claude Trichet, may flash warning lights for the central bank, which has signalled another interest rate increase by year end and possibly more thereafter.
The Commission survey also showed that economic sentiment rose again in the euro zone to 110.3 points in October from 109.3 points the previous month, mainly thanks to more upbeat services and retail sectors, as well as industry.
Consumer confidence remained unchanged in October while sentiment in the construction sector eased.
The Commission's business climate indicator, which helps determine the phase of the business cycle, was slightly off September's six-year highs but still pointed to strong industrial production in the third quarter, the Commission said.