In a recent survey conducted by the European Central Bank (ECB), consumers across the euro zone have shown a steady or even lowered expectation of inflation, despite a recent surge in prices. This development provides a hopeful sign for policymakers concerned about inflation expectations drifting away from the ECB’s targets.

Inflation in the euro zone reached 3% in April, driven by rising oil prices, surpassing the ECB’s target of 2%. This has raised concerns among some policymakers about the potential unanchoring of inflation expectations. However, the ECB’s April consumer survey indicates that expectations for inflation one year ahead remained steady at 4.0%, while expectations for three years ahead slightly decreased to 2.9% from 3.0%.

The survey, which is a crucial input for policy discussions at the upcoming ECB meeting on June 11, also revealed that expectations for inflation five years ahead remained unchanged at 2.4%. Notably, respondents from lower-income quintiles reported slightly higher inflation perceptions compared to others, while younger respondents had lower perceptions and expectations than older ones.

While the survey results are unlikely to alter market expectations for the near term, as a 25-basis-point hike in the ECB’s 2% deposit rate has been widely anticipated for June, the data may influence future policy decisions. The findings suggest there may be no immediate need for rapid policy tightening similar to that seen in 2022 when inflation reached double-digit levels.

Additionally, the survey indicated a more negative outlook for economic growth, with consumers anticipating a 2.2% contraction in the coming year. Income growth expectations were also revised down to 0.8% from 1.2%.

Fresh inflation data for the euro zone is expected soon, with economists predicting a rise to 3.2%. Price growth may continue to accelerate in the coming months, potentially peaking closer to 4%.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.