Key insights
- Euro zone consumers maintained stable or lowered inflation expectations in April, despite a current inflation surge. This suggests medium-term price bets are not significantly unanchoring from the ECB's target. While this data is an input for the ECB's June meeting, it's unlikely to alter immediate policy expectations for a 25-basis-point hike. However, it may temper bets for aggressive follow-up tightening, as consumers also anticipate economic contraction and slower income growth. The benign consumer outlook contrasts with rising headline inflation figures.
FRANKFURT, June 1 (Reuters) - Euro zone consumers kept steady or lowered their inflation expectations in April, a hopeful sign for policymakers that crucial medium-term price bets are not signalling any oversized shift away from the target, an ECB survey showed on Monday.
Inflation soared to 3% in April on higher oil prices, well above the ECB’s 2% target, and some policymakers had expressed concern that household views are starting to move too far away from target, potentially signalling an unanchoring of policy-relevant expectations.
However, the April edition of the ECB’s monthly consumer survey showed a more benign trend, as expectations one year ahead held steady at 4.0% while for three years out, they eased to 2.9% from 3.0%.
The survey, an important input into policy deliberations at the June 11 meeting, also showed expectations five years ahead unchanged at 2.4%.
"Respondents in lower-income quintiles continued to report on average slightly higher inflation perceptions and expectations," the ECB said. "Younger respondents continued to report lower inflation perceptions and expectations than older respondents."
The survey is unlikely to move market expectations for the near term as policymakers have extensively telegraphed a 25-basis-point hike in the bank’s 2% deposit rate in June.
But the data may temper bets for follow-up moves as they suggest no need for rapid policy tightening like in 2022, when prices ran away, eventually hitting double-digit territory.
This is partly because expectations for economic growth became more negative, the survey showed, with consumers anticipating a 2.2% economic contraction in the year ahead and they also curbed their income growth bets to 0.8% from 1.2%.
Fresh euro zone inflation data is due on Tuesday and economists polled by Reuters see the rate rising to 3.2%. Price growth could keep accelerating in the coming months and may peak closer to 4%.
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