Euro zone consumers see lower inflation ahead – ECB poll

FRANKFURT (Reuters) -Euro zone consumers in May cut their inflation expectations again for the following 12 months, although they still saw prices growing faster than the European Central Bank (ECB) would like for years to come, a new ECB poll showed on Wednesday.

The ECB’s monthly Consumer Expectations Survey, which also showed modest expectations for income growth, was likely to provide some relief to policymakers deploying relentless interest rate hikes to battle a bout of high inflation in the 20 countries that share the euro.

The median respondent in the May edition of the survey expected prices to grow by 3.9% in the following 12 months, down from 4.1% in April and 5.0% in March, likely reflecting in part lower realised inflation.

Uncertainty about inflation expectations 12 months ahead, as measured by the dispersion in responses, fell to its lowest level since March 2022, straight after the start of Russia’s war in Ukraine.

But consumers expected inflation three years ahead to come in at 2.5%, unchanged from April and still above the ECB’s 2% target.

Speaking shortly before the survey was released, ECB policymaker Joachim Nagel said it was key to keep inflation expectations well-anchored but he was wary of calling a new era of high interest rates.

The ECB has raised rates by an unprecedented 4 percentage points in the past year and pencilled in a ninth straight rate hike in July, with a further increase eyed in September too.

The poll also showed consumers expected their nominal income growth at 1.2% to undershoot inflation in the coming 12 months, while spending was seen rising 6.8%.

This implied lower saving or more borrowing, and should dampen worries about a possible spiral between wages and prices.

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