Euro zone inflation expectations fell before conflict
A European Central Bank survey shows consumers lowered inflation expectations to 2.5 percent before recent energy price surges changed the economic outlook.
Consumers in the euro zone were tempering their inflation outlook in the period leading up to the war involving the United States, Israel, and Iran, according to a new report from the European Central Bank. The ECB’s Consumer Expectations Survey, released on Friday, indicated that median expectations for inflation over the next 12 months and three years both fell to 2.5% from 2.6% in the prior month. Meanwhile, long-term expectations for five years ahead remained unchanged at 2.3%.
However, the data reflects a sentiment that has likely shifted significantly. The ECB noted that 97% of the survey responses were collected before the outbreak of hostilities on February 28. Since that time, a sharp increase in energy costs has fundamentally altered the economic outlook for the region.
In response to the rising costs, the central bank has already raised its inflation projections. A variety of recent surveys now suggest that consumer expectations are souring as prices continue to climb. The ECB currently anticipates that inflation will peak above 3% under its most favorable scenario, while more adverse or severe models predict significantly higher and more prolonged price surges.
