Euro zone sentiment hits three year high, inflation expectations jump

The data showed that the Economic sentiment improved by more than expected to a three-year high in May. This is due to the strongest gains in services, retail and among consumers as governments eased pandemic restrictions.

The European Commission’s economic sentiment index rose to 114.5 points in May from 110.5 in April. This is highest since Jan 2018. Optimism in services, which make up two thirds of the euro zone economy, rose the most to 11.3 points from 2.2. This is far above expectations of a rise to 7.5.

As many shops reopened after lockdowns, sentiment in the retail sector rose to 0.4 from -3.0. Consumer sentiment increased to -5.1 from -8.1 in April, moving well above the long-term average of -11.0. Construction recorded a gain.

The industry also reached a new all time high. The higher optimism about the economy translated into higher inflation expectations with the index for consumers for price trends over the next 12 months moving up to 22.2 from 19.6. Selling price expectations among manufacturers also jumped to 29.9 in May from 24.2 in April, setting a new all-time high since measurements started in 2000.