Economic sentiment was broadly stable in January. At 96.2, the EU Commission's gauge was down just 0.1 point versus both December's marginally weaker revised level and the market consensus. This only constituted a 2-month low but the measure remains well short of its 100 long-run average.

The headline dip reflected weaker confidence in retail trade (minus 5.6 after minus 5.4), construction (minus 4.3 after minus 3.4) and in the household sector (minus 16.1 after 15.1). However, there were gains in both industry (minus 9.4 after minus 9.6) and services (8.8 after 8.4).

Regionally, national sentiment deteriorated significantly in Germany (89.8 after 92.0), but improved in France (98.0 after 95.6), Italy (100.8 after 97.0) and Spain (102.6 after 101.2). That said, the two largest member states are still below the common 100 historic norm.

Meantime, inflation developments were on the firm side. Expected selling prices rose again to touch an 8-month high in manufacturing (4.6 after 3.6) and climbed in services (20.4 after 19.1) for a fourth straight month to their highest mark since last March. In addition, inflation expectations also rose further in the household sector (11.9 after 10.5).

The January report suggests that the Eurozone economy failed to gain any fresh momentum at the start of the year. However, the ECB will be more focused on deteriorating inflation expectations which are not historically high but the trend is clearly in the wrong direction; this will ensure strong resistance from the Governing Council's hawks to an early cut in key interest rates. Today's updates put the region's RPI at minus 10 and the RPI-P at minus 13, meaning that economic activity in general is falling slightly short of market expectations.

Economic sentiment in January is expected to hold steady at 96.3 after December's surprisingly strong 2.4-point jump to 96.4 which, in a report showing broad gains, was the strongest showing since April last year.

Released by the European Commission, the economic sentiment index (ESI) provides a broad measure of both business and consumer sentiment. Results are available for all participating countries and aggregated to the Eurozone and European Union level. The survey is very detailed and offers information on demand, output and inflation.

The survey offers key sentiment data across the European Union and the Eurozone region. Data are available for each country and are aggregated for both the Eurozone and EU. It is conducted by the European Commission rather than Eurostat, the compiler of most other EMU data. The index is a broad measure of both business and consumer sentiment in the EU members. Because of its coverage of all the EU countries it is highly regarded in the financial markets as a good indicator of the mood of consumers and industry in each country. It is also normally a good indicator of quarterly GDP.

Confidence indicators are calculated for industry, services, construction, retail trade and consumers. In turn, they are combined into an overall composite number, the economic sentiment indicator (ESI). The data are seasonally adjusted and defined as the difference (in percentage points of total answers) between positive and negative answers. The survey also covers other areas of the economy that are not explicitly included in the ESI. In particular, responses to questions about the inflation outlook are used by the ECB as one means of measuring inflationary expectations.