ECB reports further decline in consumer inflation expectations for June

CONSUMER expectations for eurozone inflation fell in June but remained above the European Central Bank’s (ECB) 2 per cent target as officials ponder whether to continue their unprecedented bout of interest-rate hikes.

Expectations for the next 12 months declined to 3.4 per cent from 3.9 per cent in May, the ECB said on Tuesday (Aug 8) in its monthly survey. For three years ahead, they dropped to 2.3 per cent from 2.5 per cent.

The results come before a September meeting that ECB president Christine Lagarde has said will decide between a 10th straight increase in the deposit rate and a pause.

ECB research last week showed that underlying inflation – a metric it has been keenly watching as it tightens monetary policy – has probably peaked.

Market measures of price growth, however, are testing record highs. A gauge of future inflation closed at its highest level since 2010 on Monday, pointing to an average pace of 2.67 per cent from 2028 to 2033.

While price gains in the 20-nation currency bloc won’t hit the ECB’s goal until sometime in 2025, they’re set to slow significantly later this year, according to ECB chief economist Philip Lane.

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A reversal in such pressures would help the region’s economy as it grapples with a slowdown led by Germany. ECB executive board member Fabio Panetta warned last week that monetary policy “must be prudent” to tame inflation without unnecessarily harming growth.

The ECB’s poll revealed consumers are slightly less pessimistic about the economy, expecting it to shrink by 0.6 per cent over the next 12 months compared with 0.7 per cent in May.

The survey also showed unemployment, which is at a record low, is seen at 11 per cent in a year’s time – matching consumers’ sentiments from May. Nominal incomes are expected to rise by 1.2 per cent, the same as in the previous poll.

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Meanwhile, consumers expect the price of their home to increase by 2.1 per cent over the next 12 months, stabilising at a two-year low. Additionally, expectations for mortgage interest rates 12 months ahead decreased slightly to 5 per cent from 5.1 per cent in May. BLOOMBERG