ECB says consumer inflation expectations continue to decline

CONSUMER expectations for euro-area inflation continued to decline in May, adding to a steep drop in the previous month and coming as a relief for European Central Bank (ECB) officials, who are debating how much more monetary tightening is needed.

The anticipation for the next 12 months fell to 3.9 per cent from 4.1 per cent in April, the ECB said on Wednesday (Jul 5) in its monthly survey. For the three years ahead, however, it remains unchanged at 2.5 per cent, still above the central bank’s 2 per cent target.

The decline in expectations for the coming period follows a retreat in the headline number for price gains in the currency bloc, mainly driven by falling energy costs. Underlying price pressures – the main focus of policymakers at the moment – have remained more robust, picking up again in June.  

Several ECB officials have said they want to see a sustained decline in the measure stripping out items such as energy and food before they can pause interest-rate hikes. Another increase in borrowing costs on Jul 27 is almost certain, but the following steps are more open.

Bundesbank president Joachim Nagel said earlier on Wednesday that while the ECB has not reached the end of its tightening path, “the question of how much further interest rates will have to rise cannot be answered at the present time”.