ECB says consumer inflation expectations edged higher in July

INFLATION expectations of consumers in the euro area inched higher, according to the European Central Bank, though the increase is unlikely sufficient to stop officials from pushing ahead with interest-rate cuts.

While prices are seen advancing 2.8 per cent over the next 12 months – the same as in June – the measure for three years ahead rose to 2.4 per cent from 2.3 per cent, the ECB said on Friday (Aug 23) in a monthly poll.

Expectations about where prices are headed play a key role in driving inflation itself, with policymakers still looking for conclusive evidence that their 2 per cent target will be met late next year as currently planned.

Fresh quarterly projections are due when policymakers next convene to set interest rates in September. Investors are betting on a second cut in borrowing costs, with August inflation likely to have moderated following the previous month’s surprise uptick.

Backing that view, data on Thursday showed negotiated wages across the 20-nation euro region slowed markedly in the second quarter.

The economy, meanwhile, is struggling. Despite another quarter of outperformance between April and June, sentiment is souring with Germany remaining the primary trouble spot. 

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According to the ECB’s poll, consumers became more pessimistic on the economy, foreseeing a 1 per cent contraction over the next 12 months compared with -0.9 per cent previously.

The Consumer Expectations Survey also showed:

• Expectations for the unemployment rate 12 months ahead remained at 10.6 per cent.
• Nominal incomes are seen growing 1.1 per cent – down from June’s 1.4 per cent
• Expectations for nominal spending growth over the next year were 3.2 per cent, compared with 3.3 per cent before.
• Consumers expect the price of their home to increase by 2.6 per cent over the next 12 months – down from June’s 2.7 per cent.
• Expectations for mortgage interest rates stayed at 4.8 per cent. BLOOMBERG