European Inflation Stable

BRUSSELS, Belgium (AP) -- Inflation in the 13 countries that use the euro currency should remain a steady 1.8 percent in August, the European Union's statistical agency said in a first estimate Friday, a week before the European Central Bank decides whether to raise interest rates.

The euro area's unemployment rate for July also held steady at 6.9 percent -- the lowest level since records started in 1993 as the European economy's recent growth spurt adds jobs.

Business and consumers had mixed feelings about future prospects, nonetheless, with a European Commission survey showing confidence falling to the lowest levels in six months. A European Commission survey showed consumers were slightly less confident about the euro-zone economy. Industry managers remained upbeat about future orders after a dip in the spring and early summer.

Eurostat will give details on the factors behind the inflation figure for August when it confirms the rate on Sept. 14, but the year-on-year rate is below the ECB's guideline of just under 2 percent.

The central bank can raise borrowing costs beyond the current 4 percent headline rate if it believes prices are rising too fast and the economy is overheating. But the euro area's relatively low inflation rate was influenced by falling energy prices after an oil price spike last year that have masked higher prices for food and other consumer goods.

Holger Schmieding, chief European economist at the Bank of America, said the new data did not give the ECB a clear reason to back away from a rate rise but it should do so because banks still seem "reluctant to lend to each other for longer than the very short term."

The European Commission said even though consumer confidence slipped in August, it believes confidence remains at a very high level.

Consumer confidence slipped in all large countries except for Britain, it said.

"Consumers, and to some extent also industry managers, foresee upward pressure on prices, while construction managers adjusted their price expectations downward," the commission said.

Including divergent business sectors, however, the economy sentiment for the euro area slipped to 110 in August from 111 the previous month as the services and construction sectors were more pessimistic. Retailers were slightly more upbeat.

For the EU, the drop was much smaller, from 113.2 in August from 113 in July as services and the retail trade believed they would pick up in coming months, the construction sector seeing no changes.

Another EU survey of industry managers, the business climate indicator, increases slightly to 1.41 in August from 1.35 in July as executives expected order books to rise and were optimistic about recent production trends. There was no change to their assessments of export orders and their production expectations were down slightly.