The European Central Bank's monthly consumer survey for April indicates that households' inflation expectations largely held firm or moderated, even as actual inflation surged to 3% last month amid upward pressure from oil prices.
According to the survey released on Monday, consumers' inflation expectations one year ahead were unchanged at 4.0%. Expectations looking three years out eased slightly to 2.9% from 3.0%, while the five-year-ahead measure remained steady at 2.4%.
The ECB highlighted differences across income and age groups. Respondents in the lower-income quintiles on average reported slightly higher inflation perceptions and expectations than other income groups. By contrast, younger respondents continued to register lower inflation perceptions and expectations than older respondents.
Policymakers have voiced concern in recent weeks that household views could drift too far from the bank's 2% target, a development that could complicate efforts to keep medium-term expectations anchored. The April survey, however, points to a more benign path for those policy-relevant measures.
The timing of the data is important: the survey is one of the inputs for deliberations ahead of the ECB's June 11 meeting. Markets and officials have broadly anticipated a 25-basis-point increase in the central bank's deposit rate in June - the bank's deposit rate currently sits at 2% and a move in June has been widely telegraphed.
While the survey is unlikely to alter immediate market pricing around the near-term hike, it may reduce odds of rapid follow-up tightening. The ECB's internal reading of consumer expectations suggests there is less evidence of a need to quickly replicate the aggressive tightening seen in 2022, when prices accelerated markedly and eventually reached double-digit rates in some measures.
The survey also painted a weaker near-term economic and income picture among households. Consumers anticipated a 2.2% economic contraction in the year ahead and trimmed expectations for income growth to 0.8% from 1.2%.
Fresh euro zone inflation data are due on Tuesday; polls of economists expect the headline rate to rise to 3.2%. Some forecasters cited in market commentary see price growth continuing to accelerate over coming months, with a possible peak closer to 4%.
Context for markets and sectors
- Energy - higher oil prices were a key factor in the April rise in headline inflation.
- Consumer-facing sectors - weaker income and growth expectations may weigh on demand for staples and discretionary goods.
- Financial markets - the survey feeds into ECB policy deliberations and may influence rate expectations beyond the widely signalled June move.