ECB: Consumers’ short-term inflation expectations at the lowest level in two years

According to the European Central Bank’s (ECB) Consumer Expectations Survey, consumers’ short-term inflation expectations in the Eurozone have declined to the lowest level in the past two years.

The ECB announced the results of the Consumer Expectations Survey for February.

Accordingly, consumers’ average inflation expectations for 12 months in the Eurozone decreased from 3.3 percent to 3.1 percent.

In the ECB’s statement, it was stated, “These expectations are at their lowest level since Russia’s unjust war against Ukraine began in February 2022.”

Consumers’ inflation expectations for the next 3 years remained unchanged at 2.5 percent. The expectation of economic growth among consumers in the region stood at minus 1.1 percent.

The ECB Consumer Expectations Survey is published monthly. The survey is conducted by interviewing approximately 14,000 people from Germany, France, Italy, Spain, the Netherlands, and Belgium, representing approximately 85 percent of the Eurozone GDP.

Inflation expectations play a significant role in the central bank’s monetary policy. They determine how far and at what pace the ECB will go with interest rate hikes or cuts based on the outlook for inflation.

Meanwhile, annual inflation in the Eurozone, which was 2.8 percent in January, decreased to 2.6 percent in February. While core inflation in the 20-country region was 3.3 percent in January, it fell to 3.1 percent in February.

According to ECB forecasts, the target of 2 percent inflation in the medium term is not far off.

Since July 2022, the ECB has raised interest rates by a total of 450 basis points in 10 consecutive meetings. The Bank raised the deposit rate to 4 percent at its meeting in September 2023 and did not make any changes in its meetings in October, December, January, and March.

The ECB’s increasingly apparent move towards its first interest rate cut is noteworthy.

On March 20, European Central Bank President Christine Lagarde stated that the Bank would likely have sufficient confidence to decide on its first interest rate cut in June 2024, saying, “We cannot commit in advance to the path interest rates will take after the first rate cut.”

Central bank governors from Germany, Italy, the Netherlands, Slovakia, Spain, Ireland, and Greece had pointed to June for a rate cut.

The European Central Bank will meet to determine interest rates on April 11 and June 6.

source: prepared by Melisa Beğiç

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