Consumer inflation expectations up slightly, says ECB

CONSUMER expectations for euro-area inflation increased marginally in August – reinforcing the notion that it’s too soon for the European Central Bank to declare victory over rising prices.

Expectations for the next 12 months edged up to 3.5 per cent from 3.4 per cent, the ECB said on Wednesday (Oct 11) in its monthly survey. For three years ahead, they advanced to 2.5 per cent from 2.4 per cent.

Officials raised the deposit rate to 4 per cent last month, saying this level will help bring inflation down to the 2 per cent goal if maintained for long enough. While some policymakers warn that borrowing costs may need to rise further if additional price shocks materialise, economists and investors don’t anticipate further increases.

Despite inflation easing to a one-year low last month, the outlook of consumers remains key in ensuring it does indeed return to the target. That’s particularly the case as other factors – like rising oil prices, euro weakness and a tight jobs market – threaten to exert upward pressure. 

ECB President Christine Lagarde said last month that while most measures of expectations stand at about 2 per cent, “some indicators have increased and need to be monitored closely.”

On the prospects for the economy, the ECB’s poll revealed consumers are slightly more downbeat, expecting a 0.8 per cent contraction for the next 12 months – compared with 0.7 per cent previously. The International Monetary Fund became the latest institution to cut its outlook for the currency bloc this week, predicting growth of just 0.7 per cent this year. 

SEE ALSO

ECB’s Lagarde confident over 2% inflation target, Europe’s winter gas situation

Speaking in Marrakech, where she’s attending annual meetings of the International Monetary Fund and World Bank, Spain’s Economy Minister Nadia Calvino welcomed the likelihood that the ECB will keep borrowing costs unchanged after its unprecedented tightening cycle.

“They are going to pause for a while, and I think that’s quite wise because you have countries such as Spain with strong growth and low inflation,” she said on Wednesday. “Other countries are very close to recession and have higher inflation, so we better get it right.” BLOOMBERG