Eurozone, inflation expectations increase - ECB: Consumers expect high prices and weak economic growth
Eurozone consumers raised some of their inflation expectations in August and expect higher income growth over the coming year, according to the European Central Bank's (ECB) Monthly Survey.
Average inflation expectations over the next 12 months rose in August to 2.8%, from 2.6% a month earlier, while for the next five years they rose to 2.2%, from 2.1%, reaching the highest level since August 2022. However, inflation expectations after 3 years remained unchanged at 2.5%, the ECB said, based on a survey of 19,000 adults in 11 eurozone countries.
The Central Bank cut interest rates by two percentage points until June, but has since kept them unchanged, arguing that inflation is now at the 2% target and there is no need for further changes in rates.
However, there is an internal debate about the calm outlook that appears on the surface. Some officials fear that weak economic growth and a strong euro will keep inflation persistently below target, making further rate cuts necessary. Others argue that Germany’s fiscal spending and ongoing pressures on domestic prices will continue to fuel inflation, so no further support is needed for an economy that is already growing at its potential.
Consumers also raised their expectations for nominal income growth to 1.1% over the next 12 months, from 0.9%. However, they kept their spending outlook unchanged and saw a slight increase in unemployment.
According to them, economic growth is expected to remain weak, holding steady at -1.2% for the coming year.
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