A recent survey conducted by the European Central Bank (ECB) indicates that Euro zone consumers have revised their inflation expectations downwards for both the next 12 months and three years. This development comes as a relief to policymakers, following an unexpected surge in inflation the previous month.
While inflation rates have been gradually decreasing since the peak reached last autumn, it is projected to take until 2025 for prices to return to the ECB’s target of 2%. This slow decline can be attributed to persistent underlying pressures, fueled by significant nominal wage growth in recent years.
According to the ECB’s survey, median expectations for inflation in the next 12 months dropped from 5.0% in March to 4.1% in April. Similarly, expectations for inflation three years ahead decreased from 2.9% to 2.5%. The survey, which involved 14,000 adults across the euro zone’s largest countries, indicates that the increases observed in March have largely been reversed.
Interestingly, the survey highlights a close alignment between inflation perceptions and expectations across different income classes. Younger respondents reported lower inflation perceptions and expectations, experiencing sharper declines compared to their older counterparts.
Furthermore, consumers anticipate more modest wage growth in the future, as well as a reduction in unemployment rates. Additionally, their pessimism regarding the bloc’s growth prospects has diminished, although they still foresee a period of contraction ahead.
Overall, the ECB survey’s findings suggest that Euro zone consumers are hopeful about a gradual slowdown in inflation. This shift in expectations provides some respite for policymakers and indicates a potential stabilization of the economy in the near future.
