ECB says consumer inflation expectations match 5-month high
CONSUMER expectations for eurozone inflation stayed at 4 per cent in October, adding to the European Central Bank’s case for caution in the face of mounting bets for interest-rate cuts.
Expectations for the next year matched the five-month high reached in September, the ECB said on Tuesday (Dec 5), citing its own survey. For three years ahead, the outlook also stayed unchanged at 2.5 per cent.
Consumer-price gains have moderated in recent months, with the three most recent monthly readings all coming in below economists’ expectations. In November, inflation slowed to just 2.4 per cent, while a core measure stripping out energy and food – a key focus for ECB officials – eased to 3.6 per cent.
Investors concluded that policymakers are underestimating how quickly inflation is returning to the 2 per cent target after the ECB hiked rates 10 consecutive times. A first cut in borrowing costs is now fully priced in April, even as officials have pushed back against such expectations.
ECB Executive Board member Isabel Schnabel signalled less resistance to that view on Tuesday in an interview with Reuters, saying “we should be careful in making statements about something that is going to happen in six months’ time.”
Inflation is set to pick up again in December because of volatility in energy markets and government measures to help citizens cope with last year’s price shock. When the ECB holds its next policy meeting on Dec 14, it will present new economic forecasts that will give an updated outlook for prices and the broader economy.
The ECB’s poll showed consumers becoming more pessimistic on euro-area growth, expecting a 1.3 per cent contraction in the next 12 months. Recent indicators confirmed that the private sector is struggling to gain momentum after output shrank slightly in the third quarter, raising the risk of a shallow recession. BLOOMBERG
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