Consumer expectations for euro-zone inflation rose “significantly” in March, bolstering the case of European Central Bank officials who say interest-rate increases may need to persist beyond the summer, according to Bloomberg.
Expectations for the next 12 months increased to 5% from 4.6% in February, the ECB said on Thursday in its monthly survey. For three years ahead, they climbed to 2.9% from 2.4%, further above the 2% medium-term target.
The ECB last week slowed the pace of its rate hikes to 25 basis points, with several Governing Council members saying the toughest tightening campaign in the institution’s history will conclude soon. Some, however, are starting to suggest that tightening may need to continue for longer than the two more moves that economists predict.
Money markets on Thursday bolstered hike wagers, pricing the peak in the deposit rate to within 5 basis points of 3.75%, a level last seen a week ago.
Views by consumers and investors on how prices will develop is one factor the ECB considers in setting policy. President Christine Lagarde said May 4 that “although most measures of longer-term inflation expectations currently stand at around 2%, some indicators have edged up and warrant continued monitoring.”
While headline inflation has slowed to 7% from its double-digit peak, a measure that strips out volatile items including food and energy is still near a record high.
“Inflation is still very sticky,” Bundesbank President Joachim Nagel told Bloomberg Television on Thursday in Niigata, Japan, where he’s attending the meeting of Group of Seven finance chiefs. He described price gains as “a very stubborn phenomenon.”
While Bank of France chief Francois Villeroy de Galhau said there’s only a “marginal” distance left to cover in raising borrowing costs — similar to the view of analysts — Nagel said “there’s nothing off the table” for the ECB’s September meeting.
In its survey, the ECB also said:
- Uncertainty about inflation expectations 12 months ahead reached the highest level since the start of the survey
- Nominal income expected to rise 1.3% over the next 12 months, up from 1.2%
- Economic-growth expectations for the next 12 months slipped to -1% from -0.9%
- Unemployment rate seen at 11.7% in 12 months, up from 11.5%