A monthly survey released by the European Central Bank on Monday indicates that inflation expectations among Eurozone citizens remained stable or declined in April. This positive development suggests that medium- to long-term inflation expectations in the market have not significantly deviated from the policy target, providing some reassurance to policymakers.
Driven by rising oil prices, the Eurozone's inflation rate climbed to 3% in April, well above the ECB's 2% target. Some policymakers had previously expressed concerns that household inflation expectations could become severely misaligned from the target, potentially leading to a loss of control over key inflation expectations.
However, the ECB's April consumer survey data shows an improving trend: public expectations for inflation one year from now held steady at 4.0%, while expectations for inflation three years ahead decreased from 3.0% to 2.9%.
These survey results will serve as an important reference for the ECB's policy meeting on June 11. The data also shows that public expectations for inflation five years from now remained stable at 2.4%.
The ECB stated, "The actual inflation perceptions and expectations of individuals in the lowest income quintile continue to be slightly above the average, while the inflation perceptions and expectations of younger groups remain consistently lower than those of older groups."
Market expectations for the near-term policy direction are largely settled, and this survey is unlikely to alter the existing view. ECB officials have signaled multiple times their plan to raise the deposit rate by 25 basis points in June (the current deposit rate is 2%).
Nevertheless, this data may weaken market bets on subsequent sustained interest rate hikes. The figures suggest there is no current need to replicate the aggressive monetary tightening of 2022—a year when inflation spiraled out of control, ultimately surging into double digits.
The survey also noted that public expectations for economic growth have weakened further, with an anticipated economic contraction of 2.2% over the next year. Simultaneously, household expectations for income growth were revised down from 1.2% to 0.8%.
The latest Eurozone inflation data will be released on Tuesday. Economists surveyed by Reuters anticipate the inflation rate for the month will rise to 3.2%. Price increases may continue to climb in the coming months, with a potential peak approaching 4%.
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