Headquarters of the European Central Bank in Frankfurt. Illustrative photo.
Frankfurt – Inflationary expectations among consumers in the eurozone have fallen significantly and some other economic indicators are also improving. This was shown by a survey published today by the European Central Bank (ECB). It follows that within three years, people expect inflation to drop to 2.5 percent. In February, the inflation rate in the eurozone was 8.5 percent.
Significantly more favorable inflation expectations could support calls for more moderate interest rate hikes, Bloomberg reported. In early February, the ECB raised its key interest rate by half a percentage point to three percent and signaled that it would raise it by half a point again this month.
The survey also showed that consumers expect a decrease in the outlook for the next 12 months inflation to 4.9 percent. In December, people expected inflation at five percent within a year.
Consumers also said that perceived inflation, that is how they feel it, rather than what it actually is according to official statistics, was a median of 9.5 percent in the last 12 months to January this year. It thus decreased from 9.9 percent, as the survey participants reported it in December.
The ECB will deal with monetary policy next week. It now has a deposit rate of 2.50 percent and, according to economists, will raise it to three percent. However, a quick estimate of the development of inflation for February showed a higher value than economists had predicted, so part of the central bankers will probably be inclined to further increase rates.
The prices of the German government's key bonds headed upwards after the publication of the ECB survey, and the ten-year bond yield thus reduced by up to 11 basis points to 2.64 percent. Meanwhile, money markets have tempered expectations of an interest rate cap.
ECB chief economist Philip Lane warned on Monday that monetary policy should not be on “autopilot”. Portugal's central bank governor Mário Centeno said inflation was lagging behind forecasts, while Austrian central bank chief Robert Holzmann speculated that after March's half-percentage-point hike in key interest rates, three more hikes of the same magnitude would follow.