February 27, 2014 / 10:21 AM / in 5 years

Euro zone sentiment improves, inflation expectations fall

BRUSSELS, Feb 27 (Reuters) - Euro zone economic sentiment improved more than expected in February, data showed on Thursday, but falling inflation expectations among consumer and producers underlined deflation risks.

A monthly European Commission survey showed economic sentiment in the 18 countries now sharing the euro rose to 101.2 points this month from an upwardly revised 101.0 in January, above the long-term average of 100 for the third month in a row.

Economics polled by Reuters had expected a reading of 100.9.

The Commission’s business climate index, which points to the phase of the business cycle, jumped to 0.37 from an upwardly revised 0.25 in January - the strongest reading since July 2011 - beating expectations of a rise to only 0.20.

But the Commission sentiment survey also showed that consumer expectations of inflation 12 months ahead fell to 13.6 this month from 15.1 and producer price inflation expectations tumbled to 0.1 from 2.4 in January.

Both readings were well below long-term averages for price growth expectations and underline a risk that the current sharp slowdown in euro zone inflation could turn at some point into deflation.

Year-on-year inflation was 0.8 percent in December and January after 0.9 percent and 0.7 percent in November and October respectively.

The European Central Bank, which aims to keep consumer price growth below, but close to 2 percent over the medium term and meets on monetary policy next week, has said it was aware of risks and was ready to act should they increase.

But it has stressed that it sees no threat of deflation in the euro zone now.

The improved economic sentiment was mainly due to more optimism in industry, services and the retail sector, Commission data showed, while sentiment among consumers slipped.

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