ECB says consumer inflation expectations rose sharply in March
Prices were seen soaring 4% over the next 12 months – up from 2.5% in February
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[BRUSSELS] Inflation expectations among euro-area consumers jumped across the board in March, a worrying sign for European Central Bank as it assesses the knock-on effects of the Iran war.
Prices were seen soaring 4 per cent over the next 12 months – up from 2.5 per cent in February, according to the ECB’s monthly survey of consumers, released on Tuesday (Apr 28). Expectations for three years ahead increased to 3.0 per cent from 2.5 per cent – just below the 3.1 per cent peak reached at the height of the last price spike in October 2022.
The outlook for five years rose slightly to 2.4 per cent from 2.3 per cent, moving further away from the ECB’s 2 per cent medium-term inflation target.
The ECB is monitoring whether elevated energy costs will prompt workers to demand higher salaries and firms to raise selling prices. Second-round inflation effects beyond items like gasoline could trigger interest-rate hikes, though no change is anticipated at the next policy decision, on Thursday.
Markets and economists surveyed by Bloomberg predict a quarter-point increase at June’s meeting. Traders see an additional move by year-end. Everything hinges on the duration of the conflict, with peace talks so far failing to find a lasting resolution.
“The longer the conflict lasts and the greater the damage it causes, the more severe its negative impact,” ECB Governing Council member Peter Kazimir said last week. “While just a few months ago there was talk of a possible cut, today we discuss the possibility that a slight increase might be necessary.”
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The ECB’s poll also showed consumers’ outlook for the economy souring. They saw gross domestic product over the next 12 months contracting 2.1 per cent, compared with -0.9 per cent in February. Expectations for the unemployment rate one year ahead rose to 11.3 per cent from 10.8 per cent. BLOOMBERG
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