Eurozone households keep inflation outlook steady despite price rise

Euro zone consumers lowered their inflation expectations in April, offering reassurance to policymakers concerned about whether household views on future prices were drifting too far from the European Central Bank's target, according to an ECB survey published on Monday.

The findings come after inflation accelerated to 3% in April, driven by higher oil prices and remaining well above the ECB's 2% target.

The increase had prompted concerns among some policymakers that consumer expectations could become detached from the central bank's inflation goal, potentially complicating future policy decisions.

Near-term inflation expectations unchanged

The April edition of the ECB's monthly consumer survey showed that inflation expectations for the next 12 months remained unchanged at 4.0%.

Meanwhile, consumers lowered their expectations for inflation three years ahead.

The survey showed that three-year inflation expectations eased to 2.9% from 3.0% in the previous reading.

Longer-term expectations also remained stable.

Consumers continued to expect inflation of 2.4% five years from now, unchanged from the previous survey.

The results are likely to be closely watched by policymakers as they prepare for the ECB's June 11 policy meeting.

The survey serves as an important input in the central bank's deliberations and provides insight into how households perceive future price developments.

Differences across demographic groups

The ECB noted that inflation expectations continued to vary across income and age groups.

The central bank also observed differences across age groups.

"Younger respondents continued to report lower inflation perceptions and expectations than older respondents," the ECB added.

These variations suggest that inflation concerns remain uneven across the population, even as broader expectations remain relatively stable.

Limited impact on near-term rate expectations

The survey is unlikely to significantly alter market expectations regarding the ECB's next policy move.

Policymakers have already signalled a widely anticipated 25-basis-point increase in the central bank's 2% deposit rate at the June meeting.

As a result, the latest consumer expectations data are not expected to influence the near-term policy outlook.

However, the figures could affect expectations for policy decisions beyond June.

The survey's results suggest that consumers are not anticipating a sustained acceleration in inflation that would require the kind of rapid monetary tightening seen in 2022, when price growth surged into double-digit territory.

Growth outlook deteriorates

Alongsideinflation expectations, the survey showed increasing pessimism about the economy.

Consumers expected economic conditions to worsen over the coming year, forecasting a 2.2% contraction in economic activity.

Households also lowered their expectations for income growth.

Consumers now expect income growth of 0.8% over the next year, down from 1.2% in the previous survey.

The weaker outlook for growth and incomes may help explain why longer-term inflation expectations remained relatively contained despite the recent rise in headline inflation.

The findings may therefore provide some comfort to policymakers seeking evidence that inflation expectations remain anchored even as price pressures persist.

The post Eurozone households keep inflation outlook steady despite price rise appeared first on Invezz