European business cycle indicator. 2nd quarter 2021.
Date: 2021-11-04
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: consumer price, data processing, economic analysis, economic cycle, economic forecasting, economic indicator, economic policy, economic survey, euro area, macroeconomics

ISSN 2443-8049 (online)

European 
Business
Cycle 
Indicators

2nd Quarter 2021

TECHNICAL PAPER 049 | JULY 2021

EUROPEAN ECONOMY

EUROPEAN 
ECONOMY

Economic and 
Financial Affairs

European  Economy  Technical  Papers  are  reports  and  data  compiled  by  the  staff  of  the  European 
Commission’s Directorate-General for Economic and Financial Affairs. 

Authorised  for  publication  by  Reinhard  Felke,  Director  for  Policy,  Coordination,  Economic  Forecasts  and 
Communication. 

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European Commission 
Directorate-General for Economic and Financial Affairs 

European Business Cycle Indicators 
2nd Quarter 2021 

Special topic 

Managers’ and consumers’ price expectations on the rise 

This  document  is  written  by  the  staff  of  the  Directorate-General  for  Economic  and  Financial  Affairs, 
Directorate A for Policy, Strategy and Communication, Unit A3 - Economic Situation, Forecasts, Business 
and  Consumer  Surveys  (http://ec.europa.eu/info/business-economy-euro/indicators-statistics/economic-
databases/business-and-consumer-surveys_en).     

Contact: Christian.Gayer@ec.europa.eu. 

EUROPEAN ECONOMY                                                                                        Technical Paper 049 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONTENTS 

OVERVIEW ............................................................................................................................................ 6 

1.  RECENT DEVELOPMENTS IN SURVEY INDICATORS ....................................................................... 7 

1.1. 

EU and euro area ..................................................................................................................... 7 

1.2. 

Selected Member States ...................................................................................................... 15 

2.  SPECIAL TOPIC: MANAGERS’ AND CONSUMERS’ PRICE EXPECTATIONS ON THE RISE .......... 20 

ANNEX ............................................................................................................................................... 26 

 
 
 
 
 
 
 
 
 
 
OVERVIEW 

Recent developments in survey indicators 

  Thanks  to  a  surge  in  April,  followed  by  further  marked  improvements  in  May  and 
June,  the  Economic  Sentiment  Indicators  (ESI)  for  the  EU  and  the  euro  area  (EA) 
gained a remarkable 17.1 and 17.0 points compared to March. The ESI is now well 
above its long-term average, reaching a 21-year high in both regions. 

  Likewise, the Employment Expectations Indicator (EEI) in both the EU and the EA 
recorded a sharp rise in April, followed by two further, albeit somewhat less marked, 
increases in May and June. Compared to March, the EEI in June is 13.5 (EU) / 13.8 
(EA) points up and well above its long-term average of 100 in both areas. 

  From  a  sectoral  perspective,  the  second  quarter  of  2021  saw  the  most  significant 
improvements  in  confidence  in  services  and  retail  trade.  The  gains  in  industry, 
construction  and  among  consumers  were  also  marked.  Considering  the  long-term 
averages of the indicators, the current level of confidence is high in all sectors. 

  The  ESI  recovered  in  all  of  the  six  largest  EU  economies.  The  gains  registered 
between  March  and  June  2021  were  strongest  in  Italy  (+18.4),  followed  by  Poland 
(+16.6),  France  (+16.0),  the  Netherlands  (+15.8),  Germany  (+13.5)  and  Spain 
(+10.3).  In  June,  the  ESI  was  well  above  its  long-term  average  of  100  and  its  pre-
pandemic level in all six countries. 

 

In  April,  capacity  utilisation  in  manufacturing  increased  markedly  in  both  the  EU 
(+4.7 percentage points) and the EA (+5.0 percentage points) compared to the last 
survey of January. At 82.3% (EU) and 82.5% (EA) in April, both indicators are now 
above  their  respective  long-term  averages  of  80.5%  (EU)  /  80.6%  (EA).  Both 
indicators  are  also  higher  than  their  pre-pandemic  level  recorded  in  January  2020. 
Capacity  utilisation  in  services  increased  by  1.1  percentage  points  in  the  EU  (to 
86.9%) and by 1.2 percentage points in the EA (to 86.4%) compared to January. In 
both  regions,  however,  the  indicator  remains  below  both  its  long-term  average 
(88.9% in the EU, 88.6% in the EA) and its pre-pandemic level (90.5% in the EU, 
90.3% in the EA).  

Special topic: Managers’ and consumers’ price expectations on 
the rise 

Since  the  beginning  of  the  year,  consumer  inflation  has  been  rising  rapidly.  This  Special 
Topic explores to what extent selling and consumer price expectations up to June 2021 can 
provide  additional  information  on  consumer  inflation  going  forward.  Upside  pressure  on 
prices  appears  to  be  a  response  to  shortage  of  material  and  broad  demand  pressures,  as 
highlighted by increasing capacity utilisation and orders and low levels of stocks. However, 
in the services sector, survey results suggest that price pressure remained overall contained 
in June. Still, with demand returning forcefully to certain contact-intensive services after a 
protracted COVID-related  standstill, shortage of  labour may temporarily  push up prices in 
contact-intensive  activities  further.  Statistical  analysis  suggests  that  the  recent  surge  in 
selling  price  expectations  could  translate  into  further  price  pressures  in  the  near  future  for 
products  sold  by  the  surveyed  managers  –  either  at  intermediate  or  final  level.  Under  the 
current  exceptional  circumstances,  selling  price  expectations  may  provide  important 
indications of further pressure ahead on consumer prices and therefore should be carefully 
monitored. 

6 

 
 
 
 
1.  RECENT DEVELOPMENTS IN SURVEY INDICATORS 

the  indicators,  the  current  level  of  confidence  is 
high in all sectors. 

Graph 1.1.2: Radar Charts 

1.1. EU and euro area 

The economic sentiment indicators (ESI) for the 
EU and the euro area (EA) rose sharply during 
the second quarter of 2021 (see Graph 1.1.1). In 
June,  the  indicator  reached  a  21-year  high  in 
both areas. 

Graph 1.1.1: Economic Sentiment Indicator  

Note: The horizontal line (rhs) marks the long-term average of the 
survey indicators. Confidence indicators are expressed in balances 
of  opinion and  hard data  in y-o-y  changes.  If necessary,  monthly 
frequency is obtained by linear interpolation of quarterly data. 

finished 

The  ESI 
the  second  quarter  a 
substantial 17.1 (EU)  /  17.0  (EA)  points above 
its level at the end of the  first quarter of 2021. 
At 117.0 (EU) and 117.9 (EA) points, the ESI is 
well above its pre-crisis level and its long-term 
average of 100 in both regions.  

Looking  at  the  ESI’s  sectoral  components  (see 
Graph 1.1.2), the second quarter of 2021 saw the 
most  significant  improvements  in  confidence  in 
services  and  retail  trade.  The  gains  in  industry, 
construction  and  among  consumers  were  also 
marked.  Considering  the  long-term  averages  of 

from 

Note:  A  development  away 
the  centre  reflects  an 
improvement of  a  given indicator.  The ESI is computed with  the 
following sector weights: industry 40%, services 30%, consumers 
20%, construction 5%, retail trade 5%. Series are normalised to a 
mean of 100 and a standard deviation of 10. Historical averages 
are generally calculated from  2000q1.  For  more  information  on 
the radar charts see the Special Topic in the 2016q1 EBCI. 

Except  for  construction,  where  confidence  stood 
at record levels before the COVID19 outbreak in 
Europe,  all  confidence  indicators  finished  the 
second  quarter  well  above  their  respective  pre-
pandemic reading of February 2020. 

At country level, the ESI recovered in all of the 
six largest EU economies. The gains registered 
between March and June 2021 were strongest in 
Italy  (+18.4),  followed  by  Poland  (+16.6), 
(+15.8), 
France 

the  Netherlands 

(+16.0), 

7 

 60 70 80 90 100 110 120-15-10-505Euro area 60 70 80 90 100 110 120-15-10-50520122014201620182020EUy-o-y real GDP growth (lhs)Economic Sentiment (rhs)6080100120ESIIndustryConstructionServicesRetail tradeConsumersEuro areaHistorical averageMar 21Jun 216080100120ESIIndustryConstructionServicesRetail tradeConsumersEU 
 
 
 
 
 
 
 
 
 
Graph 1.1.3: Employment expectations indicator 

Germany  (+13.5)  and  Spain  (+10.3).  In  June, 
the ESI was well above its long-term average of 
100  and  its  pre-pandemic  level  in  all  six 
countries. 

During  the  second  quarter  of  the  year,  the 
evolution  of  the  ESI  was  broadly  in  line  with 
developments in other survey-based bellwethers 
the  EA/EU.  Markit  Economics'  PMI 
for 
Composite  Output  Index  for  the  EA  increased 
throughout  the  second  quarter,  bringing  the 
indicator to a level (59.5 points) not seen since 
June 2006.  

Also  the  Ifo  Business  Climate  Index  (for 
Germany), 
the 
second  quarter  and  is  now  well  above  its  pre-
pandemic levels.  

improved  markedly  during 

The Employment Expectations Indicator (EEI)1 
moved in line with the ESI. The EEI in both the 
EU  and  the  EA  recorded  a  sharp  rise  in  April, 
followed  by  two  further,  albeit  somewhat  less 
marked,  increases in  May  and  June.  Compared 
to  March,  the  EEI  in  June  is  13.5  (EU)  /  13.8 
(EA)  points  up  and  well  above  its  long-term 
average of 100 in both areas (see Graph 1.1.3). 

Zooming  into  the  EEI's  sectoral  components, 
employment  plans  in  June  were  much  more 
optimistic than in March in all the sectors. 

1  The  new  indicator  was  presented  in  the  2019-Q4 
special  topic  of  the  European  Business  Cycle 
the 
Indicators 
Methodological  User  Guide 
Joint 
Harmonised  EU  Programme  of  Business  and 
Consumer  Surveys,  p.  22,  for  a  description  of 
the EEI). 

publication 

also 
the 

(see 

to 

8 

 50 60 70 80 90 100 110 120-3-2-1012Euro area 50 60 70 80 90 100 110 120-3-2-101220122014201620182020EUy-o-y employees  growth (lhs)Employment expectations (rhs) 
 
 
 
 
 
                                    
 
 
 
 
Sector developments 

Industry confidence in 2021-Q2 recovered for 
the  fourth  quarter  in  a  row.  Thanks  to  a 
significant  improvement  in  April,  followed  by 
two  further  increases  in  May  and  June,  the 
indicator  gained  10.3  (EU)  /  10.6  (EA)  points 
compared  to  March  2021.  The  boost  lifted  the 
indicator in both regions firmly above its long-
term  average  and  pre-pandemic  readings  (see 
Graph 1.1.4), to a record level of 11.4 in the EU 
and 12.7 in the euro area. 

Graph 1.1.4: Industry Confidence indicator 

their selling price expectations, which saw the 
sharpest month-on-month increase on record in 
April and reached an all-time high in June (see 
also the Special Topic of this edition). 

Substantial  increases  were  registered  in  all  the 
six  largest  EU  economies:  the  Netherlands, 
(+11.4),  Italy  (+11.3),  Germany  (+9.7),  France 
(+9.3), Poland (+6.5) and Spain (+5.9). Industry 
confidence  is  now  above  its  pre-pandemic  and 
long-term average level in all these countries. In 
Germany  and  the  Netherlands  the  indicator 
even reached an all-time high in June.  

Graph 1.1.5: Employment expectations in Industry  

increased 

Zooming  into  the  individual  components  of 
industrial  confidence,  all  of  them  improved 
sharply. More precisely, managers’ production 
expectations 
in  April, 
reaching  a  historical  high  and  then  declined  in 
May and June.  Managers’ assessment of  order 
the 
book 
quarter and their appraisals of stocks are now at 
historically scarce levels.  

increased  strikingly 

throughout 

sharply 

included 

the  components  not 

the 
Of 
confidence  indicator,  managers’  appraisals  of 
both export order books and past production 
saw a significant improvement over the quarter, 
too.  

in 

to 

(carried  out 

the  quarterly  manufacturing 
According 
in  April),  capacity 
survey 
utilisation 
increased 
in  manufacturing 
markedly  in  both  the  EU  (+4.7  percentage 
points)  and  the  EA  (+5.0  percentage  points) 
compared  to  the  last  survey  of  January.  At 
82.3%  (EU)  and  82.5%  (EA)  in  April,  both 
indicators are now above their respective long-
term  averages  of  80.5%  (EU)  /  80.6%  (EA). 
Both  indicators  are  also  higher  than  their  pre-
pandemic level recorded in January 2020.  

Managers’  employment  expectations 
(see 
Graph 1.1.5) recovered for the fourth quarter in 
a row, outstripping the indicator’s pre-pandemic 
level and long-term average in both the EU and 
the  EA.  The  same  observations  hold  true  for 

9 

-40-30-20-10  0 10 20-40-2002040Euro area-40-30-20-10  0 10 20-40-200204020122014201620182020EUy-o-y industrial production growth (lhs)Industrial Confidence (rhs)-30-20-10  0 10-4-3-2-1012Euro area-30-20-10  0 10-4-20220122014201620182020EUy-o-y employees manufacturing growth (lhs)Employment expectations - Industry (rhs) 
 
 
 
 
 
 
 
 
 
 
 
Graph 1.1.6: Services Confidence indicator 

substantial  increase  over  the  quarter,  which 
resulted  from  a  significant  rise  in  April  and 
May.  

Graph 1.1.7: Employment expectations in services 

Services  confidence  improved  sharply  during 
the  second  quarter,  neutralising  the  losses  the 
indicator  had  incurred  in  the  first  and  fourth 
quarters  of  last  year.  Compared  to  March,  the 
indicator  gained  27.1  (EU)  /  27.5  (EA)  points 
on  the  quarter.  Scoring  at  17.7  (EU)  /  17.9 
(EA),  services  confidence  in  June  is  now  well 
above  its  long-term  average  and  pre-pandemic 
level in both regions (see Graph 1.1.6). 

At  sub-sector  level,  the  surge  in  services 
confidence was broad-based. During the second 
quarter,  thanks  to  the  lifting  of  most  of  the 
restrictions related to COVID-19, confidence in 
contact-intensive 
as 
accommodation, restaurants, and travel services 
lockdown) 
(particularly 
increased  significantly.  Overall,  confidence  in 
contact-intensive services activities is now close 
to its pre-crisis level, while it is above it in non-
contact-intensive services activities. 

affected  by 

services 

such 

the 

into 

Looking 
the  components  of  services 
confidence  (i.e.  managers’  appraisals  of  past 
demand, the  past business situation and their 
demand  expectations),  all  of  them  registered 
sharp  increases  all  over  the  quarter.  Only 
managers’ demand expectations slowed in June, 
recording a less significant increase than in the 
previous two months.  

In  both  the  EA  and  the  EU,  employment 
expectations  in  services  improved  sharply  in 
the second quarter (see Graph 1.1.7). Managers’ 
saw  a 
selling  price  expectations  also 

Focusing  on  the  six  largest  EU  economies,  the 
period from March to June brought remarkable 
increases  in  services  confidence  across  the 
board,  most  so  in  Spain  (+37.4),  followed  by 
Germany (+27.2), the Netherlands (+27.0), Italy 
(+24.5),  France  (+23.2)  and  Poland  (+18.3). 
Except  for  Poland,  the  indicator  in  these 
countries is now above its long-term average. 

Capacity  utilisation  in  services,  as  measured 
by  the  quarterly  survey  conducted  in  April, 
increased by 1.1 percentage points in the EU (to 
86.9%) and by 1.2 percentage points in the EA 
(to  86.4%)  compared  to  January.  In  both 
regions,  however,  the  indicator  remains  below 
both  its  long-term  average  (88.9%  in  the  EU, 
88.6%  in  the  EA)  and  its  pre-pandemic  level 
(90.5% in the EU, 90.3% in the EA). 

the  second  quarter  2021,  retail  trade 
In 
confidence  continued  the  upward  development 
that started in March. Thanks to a sharp rise in 
April followed by two further marked increases 
in May and June, the indicator ended the second 
quarter significantly higher (+16.3 points in the 
EU, +16.7 points in the EA) than its reading of 
March.  In  both  regions,  confidence  indicators 
are  now  well  above  the  long-term  average  and 
pre-pandemic levels (see Graph 1.1.8). 

10 

-50-30-10 10-18-12-606Euro area-50-30-10 10-18-14-10-6-22620122014201620182020EUy-o-y services value added growth (lhs)Service Confidence (rhs)-40-20  0 20-5-3-113Euro area-40-20  0 20-5-3-11320122014201620182020EUy-o-y employees services growth (lhs)Employment expectations - Service (rhs) 
 
 
 
 
 
 
 
 
 
 
 
Graph 1.1.8: Retail Trade Confidence indicator 

All  the  components  of  retail  trade  confidence 
improved  strongly  over  the  quarter.  Managers’ 
assessments of the past business situation rose 
sharply  throughout  the  quarter,  while  their 
expectations  regarding  the  future  business 
situation  improved  substantially  in  April,  less 
so  in  May  and  decreased  in  June.  Managers 
signalled depleted levels of stocks at the end of 
2021-Q2. Levels of stocks, which enter with an 
inverted  sign 
indicator, 
decreased markedly in April, picked up slightly 
in May, and decreased again in June. 

the  confidence 

in 

Retail  trade  confidence  posted  sharp  increases 
in  the  six  largest  EU  economies.  The  increase 
was  particularly  pronounced  in  Spain  (+28.8), 
followed  by  the  Netherlands  (+18.7),  Italy 
(+16.8),  Germany  (+15.9),  Poland  (+13.6)  and 
France  (+13.0).  In  both  the  EU  and  the  euro 
area,  confidence  is  now  well  above  the  long-
term average and pre-pandemic levels.  

Thanks to two significant increases in April and 
March,  and  a  further  slight  rise  in  June, 
construction  confidence  ended  the  second 
quarter  of  the  year  8.3  (EU)  /  7.4  (EA)  points 
above  the  level  of  March.  In  both  regions,  the 
indicator  is  comfortably  above  its  long-term 
average,  but  still  slightly  below 
its  pre-
pandemic level (see Graph 1.1.9).  

of 

order  books 

In  terms  of  components,  EU/EA  managers’ 
appraisals 
their 
employment  expectations  brightened.  The 
latter,  after  a  strong  increase  in  April  and  a 
slight  increase  in  May,  however  decreased  in 
June. 

and 

Graph 1.1.9: Construction Confidence indicator 

in 
Construction  confidence  firmed  sharply 
Spain  (+11.5),  followed  by  France  (+6.9),  the 
Netherlands  and  Poland  (both  +6.4),  Italy 
(+6.1) and Germany (+4.4). Worth highlighting, 
confidence in France, Italy, the Netherlands and 
Poland  registered  a  decrease  in  June  (the 
Netherlands also in May). The indicator is now 
above  its  long-term  average  in  all  of  the  six 
largest  Member  States  but  it  is  still  below  its 
pre-pandemic  level  in  Germany,  France  and 
Poland.  

Consumer  confidence  in  March  came  in  7.6 
(EU)  /  7.5  (EA)  points  above  its  reading  in 
March.  Confidence 
the 
quarter  and  is  now  above  both  the  long-term 
average  and  the  pre-pandemic  level  (see  Graph 
1.1.10). 

improved  all  over 

Looking  at  the  individual  components  of  the 
confidence  indicator,  consumers  in  both  areas 
were  much  more  optimistic  in  respect  of  the 
general  economic  situation  in  the  country 
and, though to a lesser extent, their intentions to 
make  major  purchases  and  their  past  and 
future personal financial situation. 

11 

-30-20-10  0-20-15-10-505Euro area-30-20-10  0-20-15-10-50520122014201620182020EUy-o-y consumption growth (lhs)Retail Confidence (rhs)-50-30-10 10-30-101030Euro area-50-30-10 10-30-10103020122014201620182020EUy-o-y construction production growth (lhs)Construction Confidence (rhs) 
 
 
 
 
 
 
 
 
 
 
 
Graph 1.1.10: Consumer Confidence indicator 

Graph  1.1.11:  Euro  area  and  EU  quantitative  consumer 
price perceptions and expectations 

While not included in the consumer confidence 
indicator,  consumers’  savings  expectations 
increased  compared  to  March,  reaching  an  all-
time high in May. 

in 

economies,  namely 

Consumer sentiment brightened in all of the six 
largest  EU 
the 
Netherlands (+9.7),  Italy  (+8.3),  France (+8.0), 
Poland (7.4), Germany (+7.0) and Spain (+5.7). 
In  June,  confidence  was  well  above  its  long-
term  average  in  all  of  the  six  Member  States 
and,  except  for  Spain  and  Poland,  confidence 
was also above its pre-pandemic levels. 

In  the  EU  and  the  EA,  both  the  mean  and  the 
median  of  consumers'  price  perceptions  and 
expectations increased in 2021-Q2 compared to 
2021-Q1 (see Graph 1.1.11).2 

More detailed results, broken down by different 
socio-economic  groups,  can  be  downloaded  on 
the European Commission’s website. 

in 

included 

the  ESI) 

The  financial  services  confidence  indicator 
strengthened 
(not 
significantly  by  19.3  (EU)  /  18.2  (EA)  points 
from  March  to  June,  thanks,  notably,  to  two 
substantial increases in May and June. In June, 
the  indicator  was  far  above  its  long-term 
average and its pre-pandemic level in both areas 
(see Graph 1.1.12). 

the 

Taking  a  look  at  the  individual  components 
underlying 
in 
indicator, 
confidence resulted from substantial rises of all 
three  components  (i.e.,  managers’  assessments 
of the past demand and business situation and 
their demand expectations). 

increase 

the 

2   For  more 

information  on 

the  quantitative 
inflation  perceptions  and  expectations,  see  the 
special topic in the previous EBCI 2019Q1. 

12 

-24-14- 4-16-12-8-404Euro area-24-19-14- 9- 4-16-12-8-40420122014201620182020EUy-o-y consumption growth (lhs)Consumer Confidence (rhs)  0  5 10 15 2005101520Price perceptionsEA - MeanEU - MeanEA - MedianEU - Median  0  5 10 15 2005101520Price ExpectationsEA - MeanEU - MeanEA - MedianEU - Median 
 
 
 
 
 
 
 
 
                                    
 
 
 
 
 
 
Graph 1.1.12: Financial Services Confidence indicator 

Graph 1.1.13: Euro area Climate Tracer 

Graph 1.1.14: EU Climate Tracer 

The dynamics of the ESI in the  second quarter 
of  the  year,  namely  a  sharp  increase  in  April, 
followed  by  two  less  pronounced  but  still 
marked increases in May and June, also showed 
in  the  EU/EA  climate  tracers  (see  Annex  for 
details). In April, the climate tracer entered the 
expansion  quadrant  and  in  May  and  June  it 
started 
the 
downswing area (see Graphs 1.1.13 and 1.1.14). 

the  direction  of 

to  move 

in 

The EU/EA sectoral climate tracers (see Graph 
1.1.15)  all  show  a  similar  trend  to  that  of  the 
climate  tracer  for  the  ESI.  The  tracers  for 
industry  and  construction  moved  deeper  in  the 
expansion  area  in  April  and  point  to  the 
downswing border in May and June. The retail 
the 
trade  and  consumer 
expansion quadrant in April and are moving in 
the direction of the downswing border. Finally, 
the  services  tracer  only  entered  the  expansion 
area  in  May  and  although  it  remains  firmly  in 
this  area,  it  moved  in  the  direction  of  the 
downswing quadrant in June. 

tracers  entered 

13 

-60-40-20  0 20 40-60-40-2002040Euro area-60-40-20  0 20 40-60-40-200204020122014201620182020EUFinancial Services Confidence-4-3-2-1012-3-2.5-2-1.5-1-0.500.51downswingupswingcontractionexpansionm-o-m change levelJun-21Jan-00Jan-08-4-3-2-1012-3-2.5-2-1.5-1-0.500.51downswingupswingcontractionexpansionm-o-m change levelJun-21Jan-00Jan-08 
 
 
 
 
 
 
 
 
Graph 1.1.15: Economic climate tracers across sectors 

Euro area 

EU 

14 

-4-3-2-1012-2.5-2-1.5-1-0.500.51Industrydownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-4-3-2-1012-2.5-2-1.5-1-0.500.51Industrydownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-5-4-3-2-1012-3-2.5-2-1.5-1-0.500.51Servicesdownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-5-4-3-2-1012-3-2.5-2-1.5-1-0.500.51Servicesdownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-5-4-3-2-1012-4-3.5-3-2.5-2-1.5-1-0.500.511.52Retail tradedownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-5-4-3-2-1012-4-3.5-3-2.5-2-1.5-1-0.500.511.52Retail tradedownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-3-2-1012-2.5-2-1.5-1-0.500.5Constructiondownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-3-2-1012-2.5-2-1.5-1-0.500.5Constructiondownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-3-2-1012-2.5-2-1.5-1-0.500.51Consumersdownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08-3-2-1012-2.5-2-1.5-1-0.500.51Consumersdownswingupswingcontractionexpansionm-o-m change level Jun-21Jan-00Jan-08 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.2.  Selected Member States 

At country level, the ESI surged in all of the six 
largest  EU  economies.  The  gains  registered 
between March and June 2021 were strongest in 
Italy  (+18.4),  followed  by  Poland  (+16.6), 
(+15.8), 
the  Netherlands 
France 
Germany (+13.5) and Spain (+10.3). 

(+16.0), 

At  117.2  points  in  June,  the  ESI  for  Germany 
posted  a  fifth  consecutive  strong  monthly 
increase,  pushing  the  indicator  up  by  13.5 
points    compared  to  March.  Just  as  the  other 
‘big-6’  countries,  the  indicator  outstripped  its 
level 
long-term  average,  well  above 
prevailing  on  the  eve  of  the  outbreak  of 
COVID-19 on the continent.  

the 

The sentiment boost pushed the German climate 
tracer further up in the expansion quadrant (see 
Graph 1.2.1). 

the  quarter, 

The  Employment  Expectations  Indicator  (EEI) 
followed the evolution of the ESI, gaining 12.3 
points  over 
to  strong 
increases  in  all  three  months.  Employment 
sharply  across  all 
expectations 
surveyed  sectors  (i.e.  industry,  services,  retail 
trade and construction). 

increased 

thanks 

From  a  sectoral  perspective,  confidence  in 
services  stood  out  with  its  strongest  quarterly 
increase on record, which brought the indicator 
to  a  20-year  high.  Outstanding  increases  were 
also recorded in retail trade and industry, and to 
a 
in  construction.  Consumer 
confidence  rose  markedly  also.  The  level  of 
confidence is above its long-term average in all 
sectors and among consumers. 

lesser  extent 

Graph 
and Climate Tracer for Germany 

Economic 

1.2.1: 

Sentiment 

Indicator 

Graph 1.2.2: Radar Chart for Germany 

In  June,  the  ESI  for  France  continued  its 
upward trend visible since February, though at a 
slower pace. Compared to March, the indicator 
finished  the  first  quarter  16.0  points  higher,  at 
112.2,  back  to  its  December  2017  level.  The 
indicator  has  now  fully  recovered  from  the 
pandemic crisis and is well above its long-term 
average of 100. 

The sentiment boost in April pushed the French 
climate  tracer  in  the  expansion  area,  now 

15 

 60 70 80 90 100 110 120-15-10-5051020122014201620182020y-o-y real GDP growth (lhs)Economic Sentiment (rhs)-4-3-2-1012-3-2.5-2-1.5-1-0.500.51downswingupswingcontractionexpansionm-o-m change levelJun-21Jan-00Jan-087090110130ESIIndustryConstructionServicesRetail tradeConsumersHistorical averageMar 21Jun 21 
 
 
 
 
 
 
 
 
  
 
 
 
 
pointing  to  the  downswing  quadrant  in  June 
(see Graph 1.2.3). 

Graph 
Economic 
and Climate Tracer for France 

1.2.3: 

Sentiment 

Indicator 

The  French  radar  chart  (see  Graph  1.2.4) 
displays  the  most  significant  improvements  in 
services and retail trade confidence. Sharp rises 
were also recorded in industry and construction 
and  among  consumers,  though  less  marked  in 
comparison.  Considering  the  long-term  averages 
of the indicators, the current level of confidence is 
high in all sectors and among consumers. 

For  the  second  time  in  a  row,  Italy  posted  the 
strongest quarterly improvement in sentiment of 
the  six  largest  EU  economies.  Fuelled  by  a 
record high increase in April (+11.0 points), the 
ESI  finished  the  second  quarter  18.4  points 
above its March reading. At 117.9, it reached a 
level of confidence unseen since August 2000. 

The confidence boost pushed the Italian climate 
tracer  in  the  expansion  quadrant  in  April,  now 
moving  to  the  downswing  area  in  June  (see 
Graph 1.2.5). 

the  second  quarter, 

Over 
the  Italian  EEI 
improved  further  by  10.4  points  compared  to 
improved 
March, 
employment expectations in services, retail trade 
and  industry,  as  well  as  moderately  better  ones 
in construction. 

by  markedly 

spurred 

improved 

the  French  EEI 

Thanks  to  significant  increases  in  April  and 
May, 
again 
significantly in the second quarter (+10.5 points 
compared  to  March).  The  result  reflects  sharp 
improvements 
employment 
in  managers’ 
expectations  in  industry,  services,  construction 
and, to a lesser extent, retail trade.  

Graph 1.2.4: Radar Chart for France 

16 

 60 70 80 90 100 110 120-20-15-10-50520122014201620182020y-o-y real GDP growth (lhs)Economic Sentiment (rhs)-4-3-2-1012-3.5-2.5-1.5-0.50.51.5downswingupswingcontractionexpansionm-o-m change levelJun-21Feb-03Jan-087090110130ESIIndustryConstructionServicesRetail tradeConsumersHistorical averageMar 21Jun 21 
 
 
 
 
 
 
 
 
 
 
 
 
 
Graph 
1.2.5: 
and Climate Tracer for Italy 

Economic 

Sentiment 

Indicator 

Following  a  surge  in  April  and  a  further 
increase in May, the ESI for Spain gained 10.3 
points compared to March, despite the slight dip 
in  June.  At  107.2  points,  the  ESI  has  fully 
recovered  the  record  losses  incurred  in  spring 
2020 and exceeded its pre-crisis level.  

The  dip  in  June  pushed  the  Spanish  climate 
tracer  out  of  the  expansion  quadrant,  into  the 
area signalling a downswing (see Graph 1.2.7). 

Graph 
Economic 
and Climate Tracer for Spain 

1.2.7: 

Sentiment 

Indicator 

From  a  sectoral  perspective,  confidence  in 
services also stood out in the Italian radar chart 
(see  Graph  1.2.6)  with  a  striking  quarterly 
increase, which brought the indicator to  a level 
unseen  since  February  2018.  Strong  increases 
were  also recorded  in  retail  trade and industry, 
and to a lesser extent in construction. Consumer 
confidence  also  increased  further.  The  level  of 
confidence is above its long-term average in all 
surveyed sectors and among consumers.  

Graph 1.2.6: Radar Chart for Italy 

Just like the ESI, the Spanish EEI strengthened 
significantly  (+9.1  points  in  June  compared  to 
plans 
March).  Managers’ 
improved  sharply  in  all  surveyed  sectors  but 
most spectacularly in construction.  

employment 

As  shown  in  the  radar  chart  (see  Graph  1.2.8), 
confidence  firmed  in  all  surveyed  sectors.  The 
improvements  were  largest  in  retail  trade  and 
services,  while 
in  construction. 
smallest 
Compared to the respective long-term averages, 
confidence  is  at  a  high  level  in  all  business 
sectors,  while  it  remains  close  to  its  long-term 
average among consumers. 

17 

 60 70 80 90 100 110 120-20-15-10-50520122014201620182020y-o-y real GDP growth (lhs)Economic Sentiment (rhs)-4-3-2-10123-3-2.5-2-1.5-1-0.500.51downswingupswingcontractionexpansionm-o-m change levelJun-21Jan-00Jan-087090110130ESIIndustryConstructionServicesRetail tradeConsumersHistorical averageMar 21Jun 21 70 80 90 100 110 120-25-20-15-10-50520122014201620182020y-o-y real GDP growth (lhs)Economic Sentiment (rhs)-4-3-2-1012-3-2.5-2-1.5-1-0.500.511.5downswingupswingcontractionexpansionm-o-m change levelJun-21Jan-00Jan-08 
 
 
 
 
 
 
 
 
 
 
 
 
Graph 1.2.8: Radar Chart for Spain 

The  Dutch  EEI  gained  12.8  points  on  the 
quarter, as managers’ employment expectations 
improved markedly in all surveyed sectors. 

As shown in the radar chart (see Graph 1.2.10), 
sentiment  brightened  markedly  in  all  surveyed 
sectors  and  among  consumers.  Confidence  is 
now well above its long-term average across all 
surveyed sectors and among consumers. 

Graph 1.2.10: Radar Chart for the Netherlands 

After  a  record  high  increase  in  April  and  four 
consecutive  months  of  rising,  the  ESI  for  the 
Netherlands 
recorded  a  15.8  point  gain 
compared  to  March.  At  113.7  points,  the 
indicator  is  at  its  highest  level  since  August 
2007.  

The upbeat sentiment also showed in the Dutch 
climate  tracer  which  has  moved  up  into  the 
expansion  quadrant  since  April  (see  Graph 
1.2.9). 

Graph 
and Climate Tracer for the Netherlands 

Economic 

1.2.9: 

Sentiment 

Indicator 

The  surge 
in  managers’  and  consumers’ 
confidence  in  April  lifted  the  ESI  in  Poland 
16.6  points  above  the  indicator’s  reading  in 
March.  At  106.9  points,  the  ESI  has  fully 
recovered from its 2020 losses and is now well 
above its long-term average of 100.  

The Polish climate tracer entered the expansion 
area  in  May  but  moved  to  the  border  of  the 
downswing area in June (see Graph 1.2.11). 

18 

7090110130ESIIndustryConstructionServicesRetail tradeConsumersSpainHistorical averageMar 21Jun 21 60 70 80 90 100 110 120-10-50520122014201620182020y-o-y real GDP growth (lhs)Economic Sentiment (rhs)-4-3-2-1012-3-2.5-2-1.5-1-0.500.511.5downswingupswingcontractionexpansionm-o-m change levelJun-21Jan-00Jan-087090110130ESIIndustryConstructionServicesRetail tradeConsumersHistorical averageMar 21Jun 21 
 
 
 
 
 
 
 
 
 
Graph 
Economic 
and Climate Tracer for Poland 

1.2.11: 

Sentiment 

Indicator 

The Polish EEI picked up by 7.0 points over the 
second  quarter.  Managers  from  all  surveyed 
sectors  revised  their  employment  expectations 
upwards.  

As shown in the radar chart (see Graph 1.2.12), 
the surge in ESI was fuelled by positive signals 
from  all  surveyed  sectors  in  the  first  quarter. 
Only  in  the  services  sector  does  the  level  of 
confidence  still  remain  below  its  long-term 
average.  In  industry,  retail  trade,  construction 
and  among  consumers,  confidence  has  now 
outstripped its historical mean. 

Graph 1.2.12: Radar Chart for Poland 

19 

 40 60 80 100 120-10-5051020122014201620182020y-o-y real GDP growth (lhs)Economic Sentiment (rhs)-5-4-3-2-10123-3.5-3-2.5-2-1.5-1-0.500.511.5downswingupswingcontractionexpansionm-o-m change levelJun-21Feb-03Jan-087090110130ESIIndustryConstructionServicesRetail tradeConsumersHistorical averageMar 21Jun 21 
 
 
 
 
 
 
 
 
 
2.  SPECIAL TOPIC: MANAGERS’ AND CONSUMERS’ PRICE 

EXPECTATIONS ON THE RISE

inflation 

and  bottlenecks 

Since the beginning of the year, rapidly rising 
at 
consumer 
different  stages  of  the  production  chain  amid 
increasing  commodity  prices  and  booming 
demand have risen the question whether price 
pressures  may  eventually  feed  more  strongly 
or  persistently  into  consumer  prices.  This 
Special  Topic  looks  at  the  results  from  the 
European  Commission’s  monthly  surveys  on 
managers’ and consumers’ price expectations, 
which  can  provide  additional  information 
about potential further price pressure.3  

Graph 2.1: Selling-price expectations (% balances 
standardised) – EU  

3   The  question  on  selling  price  expectations 
asked  in  all  business  sectors  (i.e.  industry, 
services,  retail  trade  and  construction)  reads 
"How  do  you  expect  your  selling  prices  to 
change  over  the  next  3  months?  They  will 
increase, remain unchanged or decrease". The 
questions on consumers’ price perceptions and 
expectations are as follows: “How do you think 
that  consumer  prices  have  developed  (will 
develop) over the last (next) 12 months? They 
have  risen  a  lot  (will  increase  more  rapidly) 
/risen  moderately  (will  increase  at  the  same 
rate)/risen  slightly  (will  increase  at  a  slower 
rate)/stayed  about  the  same  (will  stay  about 
the same)/fallen (will fall). 

Developments in managers’ selling 
price expectations 

Managers’ selling price expectations are on an 
upward  trend  across  all  surveyed  business 
sectors (see Graph 2.1). In industry, this trend 
was  already  visible  in  the  final  quarter  of 
2020.  Accelerating  since  February  2021,  the 
indicator  reached  an  all-time  high  in  June. 
This  suggests  that  the  sharp  rise  in  industrial 
producer prices4 observed since the beginning 
of  the  year  is  set  to  continue.  Marked 
increases in  selling  price expectations  among 
industry  managers  were  reported  in  the  six 
largest  EU  Member  States.  Selling  price 
expectations  in  construction  and  retail  trade 
also  rose  markedly  in  the  EU,  largely  driven 
by a strong increase in Germany, and are now 
well above their respective pre-crisis levels. In 
services,  selling  price  expectations  started  to 
rise steeply in March and are now standing at 
their  pre-crisis 
level.  Disregarding  some 
monthly  volatility,  the  increase  was  broad-
based  across  the  six  largest  EU  Member 
States.  

Surging assessments of selling prices are also 
reflected in IHS Markit’s PMI results for EU 
output  prices5  in  manufacturing  and  services, 
as  well  as  euro-area 
for 
construction6.  

input  prices 

4   The  last  available  data  for  producer  prices  in 
manufacturing  in  the  EU  as  measured  by 
Eurostat  points  to  a  year-on-year  growth  rate 
of 5.8% in May 2021. 

5   PMI  questions  inquire  about  current  prices 

compared to the previous month. 
6   For  construction,  the  PMI  price 

is 
available only for input prices in the euro area. 

index 

20 

60.070.080.090.0100.0110.0120.0130.0140.0150.0201020112012201320142015201620172018201920202021IndustryServicesRetail tradeConstruction 
 
 
 
 
 
 
                                    
 
 
 
 
 
 
                                    
 
 
 
increase 
A  strong 
intermediate goods 

for 

industrial 

Increases  in  selling  price  expectations  in 
industry  are  broad-based  across  subsectors, 
but  are  particularly  strong  for  intermediate 
goods,  and  especially  in  the  manufacture  of 
wood, paper, rubber and plastic products, and 
basic  metals.7  In  line  with  the  reading  of 
PMI’s  industrial  input  price  indicator,  this 
points  to  price  pressures  coming  from  the 
early  stages  of  the  production  chain,  feeding 
the  production  of  consumer  and 
into 
investment goods and into different sectors of 
activity,  including  construction  (see  Graph 
2.2). 

Graph 2.2: Selling-price expectations in industry – EU 

chains 

Managers’ reported intention to charge higher 
prices  may  be  related  to  cost  factors  (i.e.  the 
recent surge in shipping costs and the increase 
in  commodity  prices)  or 
the  result  of 
bottlenecks  in  upstream  segments  of  global 
of 
supply 
semiconductors 
construction 
materials  in  the  US,  electricity  shortages  in 
China)  and,  more  broadly,  stronger  demand. 
the  Commission’s  business  surveys, 
In 
managers  express  increasing  concern  about 
the  shortage  of  material/equipment  as  the 
main  factor  limiting  production  (see  Graph 
2.3).  

(e.g. 
globally, 

shortage 

Graph 2.3: Factors limiting production in industry – EU 

Note:  results  from  quarterly  surveys  carried  out  in 
January, April, July and October.  

A  number  of  other  indicators  from  the 
industry  surveys  are 
indicative  of  price 
pressures  due  to  high  demand.  In  April, 
production  expectations  reached  an  all-time 
high  and  reported  capacity  utilisation  rates 
recovered  to  pre-crisis  levels  -  or  well  above 
those levels in certain sub-sectors such as the 
manufacture  of  basic  metals,  rubber  and 
plastic  products  and,  in  particular,  wood 
(Graph  2.4).  Moreover,  the  percentage  of 
managers  assessing  their  current  order  books 
as  more  than  sufficient  (above  normal)  has 
been  increasing  even  in  subsectors  that  are 
currently  reporting 
than  pre-crisis 
capacity  utilisation  levels.  This  suggests  that 
demand  pressure  should  remain  strong  in  the 
coming  months. 
Finally,  managers’ 
assessment of their stock of finished products 
has  reached  an  all-time  low  in  June  2021, 
suggesting a role for both demand and supply 
factors in shaping future price developments. 

lower 

Graph 2.4: Capacity utilisation (%) – total industry 
and in the intermediate goods sub-sectors where 
selling-price expectations increased the most – EU 

Note:  results  from  quarterly  surveys  carried  out  in 
January, April, July and October.  

7   Corresponding  to  the  sectors  16,  17,  22  and 
24  of  the  NACE  Rev.  2  classification  of 
activities. 

21 

405060708090100-20.0-10.00.010.020.030.040.050.060.0CONSINTMINVEPMI - input prices (rhs)PMI - output prices (rhs)0.020.040.060.080.0noneinsufficient demandshortage of labour force shortage of material and/or equipmentfinancial constraintsother factors60.065.070.075.080.085.090.095.0Jan-19Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20Jan-21Apr-21Total industryManuf. of wood and of products of wood and corkManuf. of paper and paper productsManuf. of rubber and plastic productsManuf. of basic metals 
 
 
 
 
                                    
 
 
 
 
 
 
 
 
Developments 
sector 

in 

the 

services 

in 

in 

striking 

increase 

The 
selling  price 
expectations  in  services  registered  over  the 
last  four  months  was  driven  by  contact-
intensive  services  such  as  accommodation, 
restaurants, and travel-related services, which 
started  re-opening  only  recently  (Graph  2.5). 
these  particularly  affected 
Managers 
activities  had  revised 
their  selling  price 
expectations  sharply  downwards  in  the  two 
lockdown  periods  of  spring  2020  and  last 
autumn/winter.  As  the  restrictions  started 
being 
price 
expectations  have  been  on  the  rise,  as  had 
been the case in spring/summer 2020 after the 
first lockdown. Overall, they are now broadly 
at  pre-crisis  levels  in  both  contact  and  non-
contact intensive services activities. 

lifted,  managers’ 

selling 

Graph 2.5: Selling-price expectations in services – EU 

As  regards  factors  limiting  business  activity, 
services  managers  do  not  currently  signal 
shortage  of  space  or  equipment  (see  Graph 
2.6). 

Graph 2.6: Factors limiting production in services – EU 

Note:  results  from  quarterly  surveys  carried  out  in 
January, April, July and October. 

Despite  the  uptick  in  labour  as  a  limiting 
factor  in  April8,  the  percentage  of  managers 
reporting  labour  shortages  is  still  well  below 
the  pre-crisis  level.  Similarly,  while  capacity 
utilisation9  in  the  services  sector  started  to 
recover at the beginning of the year, it is still 
well  below  both its  pre-crisis level  and  long-
term average (see Graph 2.7).  

Graph 2.7: Capacity Utilisation6 (%) in services – EU 

Note:  results  from  quarterly  surveys  carried  out  in 
January, April, July and October. 

However,  demand  expectations  have  been 
increasing since March, bringing the indicator 
above  its  pre-crisis  level.  In  June,  a  clear 
majority of managers expected an increase in 
demand  for  the  coming  months,  which  could 
indicate  further  pressure  on  prices  going 
forward.  

Developments  in  the  retail  trade 
and construction sectors 

Selling price expectations in construction and 
retail  trade  have  significantly  increased  since 
April,  driven  by  a  surge  in  Germany.  In 
construction,  this  appears  to  be  the  result  of 
raw  material 
in 
shortages, 
Germany.  Unlike  in  other  sectors,  managers 
in  the  construction  sector  do  not  expect  a 

especially 

8   April was the last time the quarterly questions 
(on  factors  limiting  business  and  capacity 
utilisation) were included in the surveys.  
9   In  the  services  sector  survey,  managers  are 
asked  whether  the  volume  of  activity  of  their 
business  could  be  increased  with  present 
resources and, if so, by how much. The replies 
to  this  question  are  used  to  calculate  a 
measure  of  capacity  utilisation  as  follows: 

22 

-40.0-30.0-20.0-10.00.010.020.0contact-intensive servicesnon contact-intensive services0.010.020.030.040.050.060.0noneinsufficient demandshortage of labour forceshortage of space and/or equipmentfinancial constraintsother factors84.085.086.087.088.089.090.091.092.0Long-termaverage (since 2011Q3) 
 
 
 
 
 
 
                                    
 
 
 
 
large  increase  in  demand  and  report  past 
demand as still below its pre-crisis level. 

Graph 2.9: Possible spillover effects of a change in 
managers’ selling-price expectations 

By  contrast,  in  retail  trade,  increasing  selling 
price expectations appear to be mainly due to 
returning demand. As COVID-restrictions are 
being lifted, retailers assess their past business 
activity  as  back  on  track  and  expect  further 
improvement in the coming months.  

Developments  in  consumers’  price 
perceptions and expectations 

from 

that  consumers’ 

the  Commission’s  consumer 
Data 
surveys  show 
inflation 
perceptions and expectations have been on an 
upward trend  since the beginning  of  the  year 
(see  Graph  2.8),  broadly  mirroring  HICP 
developments.  In  June,  both  consumer  price 
perceptions and expectations were above their 
pre-crisis levels.  

Graph 2.8: HICP (annual percentage change) and 
consumers' inflation perceptions and expectations – 
EU 

Leading  indications  for  producer 
prices and consumer prices (HICP) 

While  there  is  a  clear  visual  co-movement 
between  qualitative  survey  data  on  perceived 
and expected price developments and  official 
price  statistics  data,  the  question  is  to  what 
extent  businesses’  selling  price  expectations 
can  detect  price  pressure  at  an  early  stage  of 
price  formation  and  whether  selling  price 
expectations 
price 
perceptions  and  expectations  could  be  a 
bellwether  of  HICP  inflation,  and  hence 
signal  possible  pressure  on  consumer  prices 
during  the  post-Covid  reopening  phase  (see 
Graph 2.9). 

consumer 

and/or 

Being  released  at  the  end  of  each  month, 
managers’  selling  price  expectations  for  the 
coming 
early 
information  on  producer  price  developments, 
which  are  released  by  Eurostat  with  a 
publication lag of slightly over a month.  

three  months 

provide 

are 

price 

In  particular  in  the  manufacturing  sector, 
selling 
highly 
expectations 
correlated  with  producer  prices  (see  Graph 
2.10). The highest correlation is reached with 
coincident producer prices, but the correlation 
is  virtually  identically  high  with  producer 
prices  one  month  ahead.  By  way  of 
comparison,  PMI  output  and  input  prices 
show slightly lower correlations, albeit with a 
lead  of  around  2  months  with  respect  to 
producer prices. 

Graph  2.10:  Correlation  between  producer  prices 
and  survey  data  on  prices10  in  manufacturing  –  Jan 
2001 to May 2021– EU 

Note:  on  the  x-axis,  “m”  represents  a  coincident 
relationship between the variables, “m+1” a one month 
lag of survey information and “m-1” a one month lead. 

Selling  price  expectations,  especially  in  the 
retail  trade  sector,  are  also  highly  correlated 
with HICP  inflation (year-on-year percentage 

10   Correlations were calculated between the year-
on-year % changes of 'Manufacturing PPI', and 
EC 'Selling price expectations in industry ' and 
PMI input and output prices in industry. 

23 

-1.0%0.0%1.0%2.0%3.0%4.0%5.0%-20.0-10.00.010.020.030.040.050.060.070.080.0Inflation perceptions (Q5)Inflation expectations (Q6)HICP y-o-y % changes (rhs)Producer pricesConsumers' price expectationsConsumers' price perceptionsManagers' selling price expectationsConsumer prices (HICP)0.00.20.40.60.81.0m+4m+3m+2m+1mm-1m-2m-3m-4Correllation coefficient (ρ)Selling price expectations - PPIPMI input - PPIPMI output - PPI 
 
 
 
 
 
 
                                    
 
 
 
change)  and  appear  to  be  slightly  leading 
(Graph 2.11). The graph also shows that while 
producer  prices  are  slightly  leading  HICP 
inflation  by  one  month,  correlation  between 
the  two  series  is  only  at  about  70%.  Finally, 
correlation 
price 
expectations  and  HICP  is  somewhat  below 
80%  and  pointing  to  a  broadly  coincident 
statistical relationship. 

consumers’ 

between 

Graph 2.11: Correlation between year-on-year % 
change of HICP with PPI and EC price expectations –
Jan 2001 to May 2021 – EU 

Note: see Graph 2.10 

the 

investigate 

relationship  between 
To 
survey  data  and  euro-area  inflation  further,  a 
simple  modelling  exercise  using  bivariate 
vector  autoregressions  was  carried  out  over 
the period January 2002 - June 2021. Results 
suggest  that  shocks  to  manufacturing,  retail 
trade  and  services  selling  price  expectations 
have  transitory  effects  on  headline  inflation 
that dissipate after 2 to 3 months, but leaving 
a  lasting  effect  on  the  price  level  (see  Graph 
2.12).  

to 

selling 

shocks 

price 
Conversely, 
expectations in the construction sector and  to 
consumers’  price  expectations  have  a  very 
limited  impact  on  HICP,  dissipating  already 
after one month. 

Graph 2.12: Impact of a shock of 1STD in selling price 
expectations11 on HICP (month-on-month % 
changes) – EA12 

Despite  the  significant  impact  that  shocks  to 
survey  information  on  prices  can  have  on 
headline  inflation  according  to  the  model 
results  presented  above,  simple  bivariate 
regressions  fail  to  show  significant  forecast 
improvements  of  HICP  inflation  due  to  the 
selling  price  expectations 
inclusion  of 

11   The  graph  shows  impulse  response  functions 
(IRF)  and  95%  confidence  intervals  (CI)  of  a 
bivariate vector autoregressive model including 
headline inflation and selling price expectations 
in  a  particular  sector.  More  specifically,  it 
depicts  the  response  of  monthly  inflation  to  a 
1SD  shock  to  the  month-on-month  change  in 
managers’ selling price expectations, identified 
via timing restrictions. 

12   The  impact  analysis  was  carried  out  on  euro-
area  seasonally  adjusted  series  in  order  to 
avoid  any  exchange  rate  interference  and  to 
compare 
that  are 
it  with  survey  data 
seasonally adjusted.  

24 

0.000.100.200.300.400.500.600.700.800.90m+4m+3m+2m+1mm-1m-2m-3m-4PPI and HICPConsumer price expectations and HICPManagers Selling price expectation in manufacturing and HICPManagers selling price expectations in retail trade and HICPManagers selling price expectations in services and HICP-0.0050.0150.0350.0550.0750123456789101112services 95% CIIRF-0.0050.0150.0350.0550.0750123456789101112manufacturing 95% CIIRF-0.0050.0150.0350.0550.0750123456789101112retail trade95% CIIRF-0.0060.0140.0340.0540123456789101112construction95% CIIRF-0.0060.0140.0340.0540123456789101112consumers95% CIIRF 
 
 
 
 
 
                                    
 
 
 
by  increasing  capacity  utilisation  and  orders 
and  low  levels  of  stocks.  However,  in  the 
services  sector,  survey  results  suggest  that 
price  pressure  remained  overall  contained  in 
June.  Still,  with  demand  returning  forcefully 
to  certain  contact-intensive  services  after  a 
protracted  standstill,  shortage  of  labour  may 
temporarily  push  up  prices 
in  contact-
intensive activities further. 

Statistical  analysis  suggests  that  the  recent 
surge  in  selling  price  expectations  could 
translate  into  further  price  pressures  in  the 
near future for products sold by the surveyed 
managers  –  either  at  intermediate  or  final 
level.  Selling  price  expectations  historically 
barely  seem  to  improve  the  forecasts  for 
consumer  inflation  compared  to  a  simple 
autoregressive  model,  but  under  the  current 
exceptional  circumstances,  they  may  provide 
important  indications  of  further  pressure  on 
consumer  prices  and  therefore  should  be 
carefully monitored. 

compared  to  autoregressive  models  of  HICP 
inflation.13 

selling 

consumer 

Overall, 
price 
and 
expectations  are  highly  correlated  with  HICP 
inflation  and  shocks  to  managers’  selling 
price  expectations  in  industry,  services  and 
retail  trade  have  a  statistically  significant 
impact  on  consumer  prices  in  the  short-term. 
However,  survey  data  generally  appears  to 
carry  limited  additional  information  about 
future  developments  in  year-on-year  HICP 
inflation.  

It  is  important  to  note  that  in  the  context  of 
the  COVID  crisis  and  its  unprecedented 
economic  impact,  past  relationships  may  not 
be  an  appropriate  benchmark.  The  dramatic 
changes reported by the surveys may however 
provide 
further 
pressure  on  consumer  prices  ahead  and 
therefore warrant careful monitoring. 

indication  of 

important 

Conclusions  

This Special Topic takes a look at selling and 
consumer  price expectations  up  to June 2021 
and  assesses 
impact  on 
their  possible 
consumer inflation. 

Since  the  beginning  of  the  year,  managers’ 
selling  price  expectations  for  the  next  three 
months have been on an upward trend across 
all  surveyed  sectors.  Consumers’  inflation 
perceptions  and  expectations  have  also  been 
on an upward trend over the same period, and 
are  now  above  their  respective  pre-crisis 
levels. 

Upside  pressure  on  prices  appears  to  be  a 
response  to  shortage  of  material/equipment 
and  broad  demand  pressures,  as  highlighted 

13   The  correlation  between  year-on-year  HICP 
inflation  at  time  t  and  at  time  t-1  is very  high 
(around  0.96),  which  explains  why 
is 
challenging  to  beat  an  autoregressive  (AR) 
model of inflation. Evidence provided in Radde, 
S.: From Supply to Price Pressures—A Flashing 
PMI  Signal?,  Goldman  Sachs  European  Daily, 
28  May  2021,  on  forecasting  month-on-month 
inflation using PMI indicators points to a better 
performance of survey data on prices in short-
term inflation forecasting. 

it 

25 

 
 
 
 
                                    
 
 
 
 
ANNEX 

Reference series  

Confidence 

indicators 

Reference series from Eurostat, via Ecowin 

(volume/year-on-year growth rates) 

Total economy (ESI) 

GDP, seasonally- and calendar-adjusted 

Industry 

Services 

Industrial production, working day-adjusted 

Gross value added for the private services sector, seasonally- and calendar-adjusted 

Consumption 

Household and NPISH final consumption expenditure, seasonally- and calendar-adjusted 

Retail 

Building 

Household and NPISH final consumption expenditure, seasonally- and calendar-adjusted 

Production index for building and civil engineering, trend-cycle component 

Economic Sentiment Indicator 

The economic sentiment indicator (ESI) is a weighted average of the balances of replies to selected 
questions  addressed  to  firms  and  consumers  in  five  sectors  covered  by  the  EU  Business  and 
Consumer  Surveys  Programme.  The  sectors  covered  are  industry  (weight  40 %),  services  (30 %), 
consumers (20 %), retail (5 %) and construction (5 %).  
Balances are constructed as the difference between the percentages of respondents giving positive and 
negative replies. EU and euro-area aggregates are calculated on the basis of the national results and 
seasonally  adjusted.  The  ESI  is  scaled  to  a  long-term  mean  of  100  and  a  standard  deviation  of  10. 
Thus, values above 100 indicate above-average economic sentiment and vice versa. Further details on 
the construction of the ESI can be found here. 
Long time series (ESI and confidence indices) are available here. 

Economic Climate Tracer 

The economic climate tracer is a two-stage procedure. The first stage consists of building economic 
climate indicators, based on principal component analyses of balance series (s.a.) from five surveys. 
The  input  series  are  as  follows:  industry:  five  of  the  monthly  survey  questions  (employment  and 
selling-price  expectations  are  excluded);  services:  all  five  monthly  questions  except  prices; 
consumers:  nine  questions  (price-related  questions  and  the  question  about  the  current  financial 
situation are  excluded);  retail:  all  five  monthly  questions;  building:  all  four  monthly  questions. The 
economic  climate  indicator  (ECI)  is  a  weighted  average  of  the  five  sector  climate  indicators.  The 
sector weights are equal to those underlying the Economic Sentiment Indicator (ESI, see above).  
In the second stage, all climate indicators are smoothed using the HP filter in order to eliminate short-
term fluctuations of a period of less than 18 months. The smoothed series are then normalised (zero 
mean and unit standard deviation). The resulting series are plotted against their first differences. The 
four quadrants of the graph, corresponding to the four business cycle phases, are crossed in an anti-
clockwise movement and can be described as: above average and increasing (top right, ‘expansion’), 
above  average  but  decreasing  (top  left,  ‘downswing’),  below  average  and  decreasing  (bottom  left, 
‘contraction’)  and  below  average  but  increasing  (bottom  right,  ‘upswing’).  Cyclical  peaks  are 
positioned in the top centre of the graph and troughs in the bottom centre. In order to make the graphs 
more readable, two colours have been used for the tracer. The darker line shows developments in the 
current cycle, which in the EU and euro area roughly started in January 2008. 

26 

 
 
 
 
 
 
 
 
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