This Month - The European Commission’s monthly indices show that the area continued to lose ground as economic sentiment slipped from 88.8 in July to 86.9 in August. All main sector gauges fell in the month save consumer confidence which advanced one thin point but remained negative overall and weak in its historic range.

Assessing the levels of the various indicators - The EU sentiment gauge stands in the 31st percentile of its range in August 2008. The gage for EMU is slightly stronger in its 35.8th percentile. France did not report on time this month and that often seem to be the case for France when things are deteriorating. Reporting later does not make things better. Germany and Italy have overall sentiment gauges that lie in about the 35th percentile of their respective historic ranges. Spain is in the bottom 8 percentile of its range. The UK, an EU member, drags down the average with a heavy weight as its gauge stands in the bottom 19 percent of its historic range.

Assessing the sectors this month: In August the retail index fell especially hard, dropping by 4 points. This compares to a three point drop for the industrial sector. Services backtracked by only one point, but that sector is the relative weakest in the 13th percentile of its historic range. Retailing is in the 22nd percentile of its historic range and consumer confidence with its one-point rise stands in the 27th percentile of its range. Construction at a deeply negative -18 is still in the 51st percentile of its historic range while MFG at a -10 is at the 50th percentile the dead middle of its range.

EMU inflation, the EU Commission survey and more - There is a lot of concern about inflation in EMU at the moment. The day also saw the release of the EMU July HICP. That preliminary reading showed inflation has notched down to 3.8% from 4% - a move in the right direction but still distant from the 2% ECB ceiling for inflation. In the EU Commission survey there was some evidence that inflation expectations were adjusting in a positive direction. For industrial selling prices, expectations fell by three months to a +17 level and stand in the 75th percentile of their historic range- still high. For consumers, expected price trends in the next 12-months broke sharply lower dropping by 8 points on the month to stand at +22 in the 57th percentile of their historic range. In construction prices expectations stood at a +4 down in the month and down sharply from +111 in June but still held in the 63rd percentile of their range. All in all actual inflation did edge lower in the month of July and expectations are moving in the right direction, lower, in August. The ECB can breathe somewhat of a sigh of relief. The bad inflation news on the day came form Germany where more first half wage agreements showed signs of edging over 4%. So it was not a perfect day but it was a good day for inflation-watchers.