ECB says consumer inflation expectations edged higher in July

CONSUMER expectations for euro-area inflation inched up in July, remaining above the 2 per cent target of the European Central Bank (ECB), as officials ponder whether to hike or hold interest rates next week.

Expectations for the next 12 months failed to slow, staying at 3.4 per cent, the ECB said on Tuesday (Sep 5) in its monthly survey. For the outlook three years ahead, they rose to 2.4 per cent from 2.3 per cent.

The results are the last major piece of price data before a Sep 14 announcement that President Christine Lagarde has said will either extend or pause the ECB’s unprecedented campaign of monetary tightening.

Numbers last week showed that underlying inflation – a metric officials have been watching keenly – slowed in August, though the headline number held steady. At 5.3 per cent, both are significantly above the ECB’s 2 per cent goal.

ECB chief economist Philip Lane offered a cautiously optimistic take on prices earlier on Tuesday, saying that the slowing in the goods and services gauges were welcome and that underlying pressures would keep weakening.

“We do expect to see this famous core inflation come down throughout the autumn,” he told Irish website, the Currency. “I would underline the fact that there has been some easing in goods inflation and services inflation, which is a welcome development.”

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Even so, ECB Governing Council member Pierre Wunsch signalled at the weekend that another increase in the deposit rate – currently 3.75 per cent – may be warranted.

“I’m inclined to say we maybe need to do a little bit more,” the hawkish Belgian central bank governor said, adding that the “idea that we’ll have to come to a pause at a certain point can’t be excluded”.

The ECB’s poll revealed consumers are a touch more negative about the economy, expecting it to shrink by 0.7 per cent over the next 12 months, compared with 0.6 per cent in June.

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The survey also showed:

• Expectations for the unemployment rate in a year were unchanged at 11 per cent;
• Nominal incomes are seen rising by 1.1 per cent over the next year;
• Consumers expect the price of their home to increase by 2.1 per cent, unchanged since May;
• Expectations for mortgage interest rates 12 months ahead rose a little, to 5.1 per cent from 5 per cent. BLOOMBERG