Consumer expectations for euro-area inflation increased marginally in August — reinforcing the notion that it’s too soon for the European Central Bank to declare victory over rising prices.
(Bloomberg) — Consumer expectations for euro-area inflation increased marginally in August — reinforcing the notion that it’s too soon for the European Central Bank to declare victory over rising prices.
Expectations for the next 12 months edged up to 3.5% from 3.4%, the ECB said Wednesday in its monthly survey. For three years ahead, they advanced to 2.5% from 2.4%.
Officials raised the deposit rate to 4% last month, saying this level will help bring inflation down to the 2% goal if maintained for long enough. While some policymakers warn that borrowing costs may need to rise further if additional price shocks materialize, economists and investors don’t anticipate further increases.
Despite inflation easing to a one-year low last month, the outlook of consumers remains key in ensuring it does indeed return to the target. That’s particularly the case as other factors — like rising oil prices, euro weakness and a tight jobs market — threaten to exert upward pressure.
ECB President Christine Lagarde said last month that while most measures of expectations stand at about 2%, “some indicators have increased and need to be monitored closely.”
On the prospects for the economy, the ECB’s poll revealed consumers are slightly more downbeat, expecting a 0.8% contraction for the next 12 months — compared with 0.7% previously. The International Monetary Fund became the latest institution to cut its outlook for the currency bloc this week, predicting growth of just 0.7% this year.
ECB Governing Council member Klaas Knot said Wednesday in Marrakech, where he’s attending annual meetings of the International Monetary Fund and World Bank, that inflation shocks are now in retreat, though officials stand ready to step in again if reaching the 2% goal moves further into the future.
“The effects of these shocks are now gradually waning,” the Dutch central banker said. “Of course, we’re open to the realization that disinflation processes never take place in a sort of linear fashion and there may be new shocks ahead of us,” he said, adding that “in such a case, we will remain vigilant and we will stand ready to adjust interest rates even more.”
Spain’s Economy Minister Nadia Calvino said she thinks it would be “quite wise” if the ECB now keeps borrowing costs on hold after its unprecedented tightening cycle.
“You have countries such as Spain with strong growth and low inflation,” she said Wednesday. “Other countries are very close to recession and have higher inflation, so we better get it right.”
The ECB’s consumer survey also showed:
- Expectations for the unemployment rate in a year increased to 11.1% from 11%
- Nominal incomes are seen growing by 1.2% over the next year, up from 1.1%
- Consumers expect the price of their home to grow 2.3% over the same period, up from 2.1%
- Expectations for mortgage interest rates rose to 5.2% from 5.1%
–With assistance from Barbara Sladkowska, Alonso Soto and Jana Randow.
(Updates with Knot starting in seventh paragraph. An earlier version corrected the day of publication.)
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