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Eurozone Consumer Expectations for Inflation Rise Slightly

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Andrew R. Michaud

• October 11, 2023

Eurozone consumer expectations for inflation have risen marginally in August, remaining well above the European Central Bank's target of 2%. The latest consumer survey published by the ECB on Wednesday reveals that consumers anticipate a 3.5% increase in prices over the next twelve months, slightly higher than the 3.4% recorded in July. For a three-year horizon, inflation expectations in August are at 2.5%, up from 2.4% in July.

ECB's Inflation Forecasts versus Consumer Expectations

While consumers are predicting higher inflation rates, the ECB's own forecasts for inflation differ slightly. The central bank expects inflation to reach 3.2% in 2024 and 2.1% in 2025, as per its latest estimates from September.

ECB Hiking Cycle Reaches Its Peak

The recent response stems from the ECB's announcement last month, signaling that it had likely reached the peak of its hiking cycle. This decision came as inflation displayed signs of sustained decreases, while indications of an economic slowdown in the eurozone were becoming more pronounced. As part of this announcement, the ECB raised its key interest rate to 4.0%.

Decrease in Consumer Prices and Increase in Incomes

Preliminary estimates from Eurostat, the European Union's statistics agency, show that consumer prices rose by 4.3% on a year-on-year basis in September, lower than the 5.2% recorded in August. Meanwhile, consumers expect their incomes to rise by 1.2% over the next year, slightly higher than the 1.1% projected in July.

Deteriorating Economic Outlook

Consumer expectations regarding the economic situation in the euro area indicate a pessimistic outlook for the next twelve months. Consumers anticipate a decline of 0.8% in gross domestic product and an unemployment rate of 11.1% next year. This is in contrast to the previous month's projections of a 0.7% decline in GDP and an unemployment rate of 11.0%. On the other hand, the ECB predicts that the eurozone economy will grow by 1.0% in 2024 and 1.5% in 2025, with unemployment rising from 6.4% in August to an average of 6.7% for both 2024 and 2025.