Consumer expectations for euro-area inflation continued to decline in May, adding to a steep drop in the previous month and coming as a relief for European Central Bank officials who are debating how much more monetary tightening is needed.
(Bloomberg) — Consumer expectations for euro-area inflation continued to decline in May, adding to a steep drop in the previous month and coming as a relief for European Central Bank officials who are debating how much more monetary tightening is needed.
The anticipation for the next 12 months fell to 3.9% from 4.1% in April, the ECB said Wednesday in its monthly survey. For three years ahead, however, it remains unchanged at 2.5%, still above the central bank’s 2% target.
The decline in expectations for the coming period follows a retreat in the headline number for price gains in the currency bloc, mainly driven by falling energy costs. Underlying price pressures — the main focus of policymakers at the moment — have remained more robust, picking up again in June.
Several ECB officials have said they want to see a sustained decline in the measure stripping out items like energy and food before they can pause interest-rate hikes. Another increase in borrowing costs on July 27 is almost certain, but the following steps are more open.
Bundesbank President Joachim Nagel said earlier Wednesday that while the ECB hasn’t reached the end of its tightening path, “the question of how much further interest rates will have to rise cannot be answered at the present time.”
In its survey, the ECB also said:
- Uncertainty about inflation expectations 12 months ahead fell to the lowest since March 2022
- Nominal income expected to rise by 1.2% over the next 12 months, up from 1.1% in April
- Expectations for economic growth for the next 12 months rose to -0.7% from -0.8%
- Unemployment rate seen at 11% in 12 months, down from 11.2% in April
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