Euro-Zone Inflation Meets Central-Bank Target

Euro zone inflation was stable at the European Central Bank's target for the 12th straight month in August but consumer expectations of inflation jumped and economic sentiment weakened more than expected, data showed.

European Union statistics office Eurostat estimated that consumer prices in the 13 countries using the euro rose 1.8% year-on-year in August, the same as in July and in line with market expectations.

The ECB wants to keep inflation below but close to 2%. Price growth has been at that target since September 2006.

But a monthly European Commission survey showed inflation expectations 12 months ahead, a factor the ECB watches closely in policy decisions, surged to 26 points in August from 19 in July -- the first increase in nine months.

Producer inflation expectations remained stable at 13.

Markets expect the bank will refrain from an interest rate rise earlier signaled for Sept. 6 so as not to further damage sentiment after market turmoil and problems at some German banks in the wake of the U.S. subprime mortgage crisis.

A monthly European Commission survey showed economic sentiment in the euro zone deteriorated more than expected in August to 110.0 points from 111.0.

Economists had expected a decline to 110.3 points.

Sentiment deteriorated in the services sector, which generates more than two-thirds of the euro area's gross domestic product, in the construction sector and among consumers even though Eurostat data showed unemployment in July stayed at a historic record low of 6.9%.

Yet the Commission's business climate indicator, which helps establish the phase of the business cycle, rebounded to 1.41 in August from 1.35 in July, pointing to firm economic activity in the industry sector in the coming months.