A crucial survey released ahead of the European Central Bank's September meeting reveals that consumers in the eurozone now expect inflation over the next 12 months to be 3%, a significant decline from the 3.6% forecast in the previous survey.
This cooling of price pressures is also reflected in corporate expectations, with businesses reporting lower forecasts for their selling prices and employee wages. The ECB's monthly Consumer Expectations Survey shows the median one-year inflation outlook has fallen for three consecutive months, dropping from 3.6% in May and 3.9% in April to 3% in June. Expectations for inflation three years ahead have remained stable at around 2.5%. The primary driver of this decline is the easing of projected increases in energy and food prices.
However, the economic outlook has simultaneously deteriorated. The survey indicates that respondents' expectations for economic growth over the year ending in the second quarter of 2026 have fallen sharply, with the annualized estimate nearly halving. Consumer expectations for the unemployment rate have also risen, reflecting growing concerns about a slowdown in economic activity.
The eurozone's headline inflation rate eased to 2.8% in June, giving the ECB room to maintain its current policy stance. The central bank decided to hold interest rates steady at its July meeting, keeping the deposit facility rate at 2.25%. While market pricing for a September rate hike had exceeded 80% due to the boost in energy prices from the Middle East conflict, the latest cooling in inflation expectations could provide the central bank with more space to wait and see.
ECB President Christine Lagarde has emphasized that policy will remain data-dependent. The ECB's upcoming macroeconomic projections, due for release in September, will incorporate this survey data, providing a key foundation for the Governing Council's decision. The market is closely watching whether inflation expectations can remain stable near the target amid volatility in energy prices.
The timing of this survey's release, falling during the pre-decision silent period, makes it a critical reference for the public to gauge the central bank's policy direction.
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