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Euro zone consumers more hopeful on inflation
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FRANKFURT (Reuters) -Euro zone consumers lowered their inflation expectations, a fresh European Central Bank survey showed on Tuesday, a relief for policymakers after an unexpected surge a month earlier, even if underlying price growth is still likely to be stubborn.
The ECB has raised interest rates by a combined 375 basis points over the past year to arrest runaway price growth and it could still take until 2025 for inflation to slow back to its 2% target as rapid wage growth and robust demand for services keep pressure on prices.
Median expectations for inflation over the next 12 months fell to 4.1% in April from 5.0% in March, while for three years ahead, they dropped to 2.5% from 2.9%, the ECB said, based on a monthly survey of 14,000 adults in the euro zone’s biggest countries.
The figures comes as Dutch policymaker Klaas Knot, an outspoken policy hawk, made cautiously optimistic comments on price growth, arguing that the worst of Europe’s inflation problems are now in the past.
Still, Knot warned that it could still take some time before inflation, at 6.1% in May, is fully under control.
“Because inflation was high for a long period, underlying inflationary pressures have built up,” Knot said in a speech. “It is likely that price pressures in these areas will prove more difficult to bring down.”
Still, Knot argued that longer term expectations are still “decently” anchored and there is growing evidence both in financing conditions and macro indicators, that ECB policy is working.
“It is reassuring to see the first signs of recent monetary policy actually being transmitted to the real economy,” Knot added.
A long list of policymakers, including Knot, have argued that the ECB’s June rate hike, considered a done deal by most, needs to be followed up by another move in July for inflation to be fully under control.
But the outlook beyond that is murkier. Bundesbank President Joachim Nagel has argued that it is not certain that rates would peak this summer, while his French counterpart Francois Villeroy de Galhau said he thought hikes would end by the close of the summer.
The ECB’s consumer expectations survey also included a new nugget that could support arguments for more cautious policy tightening.
Consumers saw more modest wage growth ahead, reduced their unemployment expectations and were less pessimistic about the bloc’s growth prospects, even if they still saw a contraction ahead.
(Reporting by Balazs Koranyi;Editing by Bernadette Baum and Sharon Singleton)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured as an annual percentage increase.
The European Central Bank (ECB) is the central bank for the euro and administers monetary policy within the Eurozone, aiming to maintain price stability and control inflation.
Inflation expectations refer to the rate of inflation that consumers, businesses, and investors anticipate in the future, which can influence economic behavior and policy decisions.
Monetary policy is the process by which a central bank, like the ECB, manages the supply of money and interest rates to achieve macroeconomic objectives such as controlling inflation and stabilizing currency.
Consumer confidence is an economic indicator that measures how optimistic or pessimistic consumers are regarding their expected financial situation and the overall economy, influencing their spending behavior.
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