Consumer inflation expectations rise sharply in March
Consumer inflation expectations for the next 12 months and three years rose significantly in March, according to the ECB's Consumer Expectations Survey. Perceived inflation also increased, while five-year expectations saw a slight rise.
Consumers see higher inflation ahead
The median perceived inflation over the past 12 months increased to 3.5 percent in March, up from 3.0 percent in February.
Short-term inflation expectations for the next 12 months also jumped to 4.0 percent from 2.5 percent.
Similarly, expectations for inflation in three years rose to 3.0 percent from 2.5 percent.
Even longer-term, five-year inflation expectations edged up to 2.4 percent from 2.3 percent.
This broad-based increase in inflation outlook was accompanied by heightened uncertainty regarding short-term expectations.
Notably, consumers in lower income quintiles continued to report higher inflation perceptions and short-term expectations compared to those in higher income brackets, a trend observed since 2023.
Younger respondents (18-34 years) consistently held lower inflation views than older age groups (35-70 years).
Weaker growth, tighter credit
Expectations for nominal income growth over the next 12 months remained stable at 1.2 percent in March.
However, expected nominal spending growth rose to 4.1 percent, reaching its highest level since March 2023.
Economic growth expectations became more negative, falling to -2.1 percent.
Unemployment rate expectations for 12 months ahead climbed to 11.3 percent, with lower-income households anticipating the highest rates.
Housing price expectations for the next 12 months rose slightly to 3.7 percent, and mortgage rate expectations increased to 4.9 percent.
The net share of households reporting tighter credit access over the past year and expecting tighter access in the coming year both rose to levels not seen since April 2024 and January 2024, respectively.
A challenge for ECB communication
The sustained rise in consumer inflation expectations, particularly for the short and medium term, presents a significant challenge to the ECB's disinflation narrative.
This divergence from the central bank's 2 percent target could fuel second-round effects and complicate future policy decisions.
While the survey reflects public sentiment, it underscores the need for clear and consistent communication to anchor expectations effectively.