Euro Zone Consumers Lower Near-Term Inflation Outlook, Survey Shows

The ECB's Consumer Expectations Survey released June 26 shows euro-area households reduced their 12-month inflation forecast to 3.5 % in May, down from 4.0 % in April. Longer-term expectations stayed at 2.9 % for three years and 2.4 % for five years. The survey covered about 19,000 adults in 11 member states.

Reuters

The survey follows the ECB’s June decision to raise its deposit rate, the first hike since 2023. Uncertainty remains elevated due to the war in the Middle East; oil prices have recently returned toward pre-conflict levels after the United States and Iran signaled steps toward a lasting peace agreement. Markets price one to two additional rate hikes, with the next move not fully reflected until the autumn meeting.

Bloomberg

Respondents projected GDP to contract by 1.7 % over the next year, improving from a 2.2 % decline in April, and saw unemployment rise to 11.3 %. Lower-income households reported higher inflation expectations; younger respondents indicated lower expectations.

Reuters

The ECB said uncertainty about inflation expectations over the next 12 months has fallen but remains above pre-war levels. It noted the recent deposit-rate increase reflects a cautious stance while core-price pressures have intensified. The bank emphasized that longer-term inflation expectations stay anchored near its 2 % target, guiding policy.

Reuters

Executive Board member Isabel Schnabel argued that more action is needed to bring inflation back to 2 %, supporting further tightening. President Christine Lagarde and Chief Economist Philip Lane urged caution, warning overtightening could worsen the bloc’s slowing economy. The split highlights a debate over timing and scale of any additional rate moves.

Bloomberg

• “Uncertainty about inflation expectations over the next 12 months decreased but remained at ?a higher level than before the start of the war in the Middle East,” — European Central Bank

Reuters

• “Executive Board member Isabel Schnabel said this week that as things stand, more action is needed to bring inflation back to 2%.” — Isabel Schnabel, ECB Executive Board member

Bloomberg

• “Financial markets are pricing between one and two more rate hikes and the next move is not fully priced in until the autumn.” — European Central Bank

Reuters

Analysts expect the ECB to review the latest consumer-inflation data ahead of its September meeting, with a possible further rate hike if core pressures persist. Market participants will watch how the bank balances inflation-reduction goals against the risk of slowing growth, especially as the Middle-East peace process unfolds and oil-price volatility recedes.

Reuters