Euro Zone Consumers Lower Short-term Inflation Expectations, ECB Survey Reveals

Consumers across the Euro zone are adjusting their inflation expectations for the near future downwards, as per findings from the European Central Bank’s (ECB) recent Consumer Expectations Survey (CES). This shift is seen as a positive indication of the impact of the ECB’s rigorous credit-tightening measures, aimed at reining in the historically high inflation rates.

The survey, a critical tool for ECB policymakers, assesses the success of the most intensive sequence of interest rate hikes in the history of the Euro, in convincing households of a return to the ECB’s target inflation rate of 2%. The latest data, collated in December from an expanded panel now encompassing 11 countries, reveals a decrease in the median household’s inflation expectation for the coming 12 months to 3.2%, down from 3.5% the previous month.

However, the survey also highlights that medium-term expectations, specifically for three years ahead, are still hovering above the ECB’s target, even registering a slight increase to 2.5% from 2.4%. The addition of Ireland, Greece, Austria, Portugal, and Finland to the existing participant countries – Belgium, Germany, Spain, France, Italy, and the Netherlands – has enhanced the survey’s scope, now covering 96% of the Euro area’s GDP and 94% of its population.

The significance of the CES stems from its influence on the ECB’s decision-making process. Households’ inflation expectations directly impact wage negotiations and shape attitudes towards saving and expenditure, making the survey a vital indicator of public sentiment and its potential effect on the economy.