Economic sentiment in the eurozone weakened and inflation eased in November, data showed on Wednesday, a day before the European Central Bank was set to raise interest rates in a move politicians say could threaten a fragile economic recovery.
The EU statistics office's flash estimate showed inflation easing in November to an expected 2.4 percent year-on-year from 2.5 percent in October in the 12 countries using the euro, while economic sentiment worsened after four consecutive months of improvement.
"It's a classic case of bad timing for the ECB. They are just about to mount their rate tightening campaign just at the moment when euro zone inflation is starting to fall," said David Brown, Chief European Economist at Bear Stearns.
The ECB aims to keep inflation below but close to 2.0 percent and has signalled it is ready to raise rates soon to prevent high oil prices triggering wage demands and price increases in other sector.
ECB Executive Board Member Lorenzo Bini Smaghi removed all doubt on Wednesday when he told a conference the ECB could raise rates to 2.25 percent on Thursday to guarantee low inflation.
Bloomberg Television reported sources as saying that the ECB would forecast on Thursday that inflation will be 2.1 percent both in 2006 and in 2007.
Eurozone finance ministers criticised the ECB's rate rise plans as threatening the still frail economic recovery. And the Organisation for Economic Co-operation and Development said on Tuesday the ECB should wait until autumn 2006 before raising the cost of credit to let the economic recovery take root as inflation would fall.
The ECB has argued it needed to raise rates to maintain credibility among euro zone consumers that it would guard the value of the euro.
But the Commission survey said consumer inflation expectations were unchanged in November from October, although industry and construction mangers expected some upward pressure on prices.
Eurostat confirmed third quarter economic growth in the euro zone accelerated to 0.6 percent quarter-on-quarter and said the rise was driven mainly by exports and investment, but also some private consumption.
The statistics office revised first and second quarter economic growth numbers to show the economy did not go through a second quarter slump, as initially reported, but has been steadily accelerating since the beginning of the year.
Private consumption, long the weakest point of the euro zone economy, rose by 0.3 percent quarter-on-quarter from a 0.2 percent increase in the second quarter and a 0.1 percent rise in the first, the data showed, in a sign the economic recovery could be taking deeper root.
Further signs of an economic recovery could also be seen in the decline in the October jobless rate in the second biggest economy France by 0.1 percentage point to 9.7 percent.
In the biggest euro zone economy Germany October retail sales jumped twice as much as expected.
But business and consumer confidence surveys from the European Commission showed that economic sentiment in the euro zone weakened in November and consumer sentiment remained unchanged at low levels.
After an improvement to -4 points in October from -8 in September, the euro zone's retail sales confidence index fell back to -6 points in November, the Commission survey said.
The overall economic sentiment indicator eased to 99.9 points from a revised 100.2 points in October, confounding market expectations of a rise. The business climate fell to 0.13 from 0.18 in October instead of rising to 0.2 as markets had expected.
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