Consumer expectations for future inflation in the eurozone edged down slightly in April, offering a small respite for policymakers considering further interest rate hikes, though officials' concerns about expectations becoming "de-anchored" are intensifying.
According to the European Central Bank's latest monthly survey released on Monday, respondents expect prices to rise by 2.9% in three years, a slight decrease from 3% in March and below the peak of 3.1% recorded in October 2022 during the last surge in prices.
However, inflation expectations for the next 12 months remain stubbornly stuck at 4%, while expectations for inflation in five years also hold steady at 2.4%, continuing to exceed the ECB's medium-term target of 2%.
The ECB noted that the inflation perceptions and expectations of the lowest-income quintile of respondents remain slightly higher on average than other groups, while younger respondents' perceptions and expectations continue to be lower than those of older groups.
Although market expectations for a near-term rate hike are well-established—with policymakers widely signaling a 25 basis point increase to the deposit rate in June—the survey results had limited impact on market pricing.
Nevertheless, the data may temper bets on subsequent hikes, as the survey suggests there is no current need for the rapid policy tightening seen in 2022, when prices spiraled out of control, eventually reaching double-digit levels.
Just prior to this data release, ECB Executive Board member Isabel Schnabel warned on Monday that the risk of inflation expectations becoming "de-anchored" is rising.
She emphasized that the ECB cannot ignore the surge in energy prices triggered by the conflict in Iran.
Last week, the German official described the rise in medium-term inflation expectations and the rightward shift in the distribution of expectations shown in the March survey as "worrying." A rightward shift in the distribution is widely seen as an early signal that expectations may be drifting away from the 2% target.
Policymakers are striving to prevent severe volatility in energy markets from transmitting more broadly to consumer prices.
Data scheduled for release on Tuesday is expected to show a further uptick in the eurozone's headline inflation rate, with analysts' consensus estimate at 3.2%.
Concurrently, some policymakers are concerned about the drag on economic activity from geopolitical conflicts.
The ECB's survey reflects growing pessimism: respondents now expect the gross domestic product to contract by 2.2% over the next 12 months, a more pessimistic view than the 2.1% contraction expected in March.
They also lowered their income growth expectations from 1.2% to 0.8%.
However, expectations for the unemployment rate one year from now saw a slight improvement, edging down from 11.3% to 11.2%.
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