Euro zone consumers sharply lift inflation bets, ECB survey shows

Euro zone consumers sharply raised ​their inflation expectations in March, ​a key European Central Bank ‌survey indicated ​in a worry for policymakers who fear that high energy costs could push up expectations and ‌make rapid price growth self-perpetuating. Inflation has surged since the war in Iran pushed up energy prices and the ECB is now nervously watching to ‌see if this shock creates second-round effects, necessitating policy tightening.

Inflation expectations for one ‌year ahead jumped to 4.0% in March from 2.5% a month earlier while bets for three years out rose to 3.0% from 2.5%, both well above the ECB's ⁠2% ​medium term target, the ⁠bank's monthly Consumer Expectations Survey showed on Tuesday. However, policymakers may take some comfort in expectations for ⁠five years ahead, which only moved to 2.4% from 2.3%.

Meeting on Thursday, ​the ECB is expected to keep interest rates unchanged for now ⁠but will likely make clear that rate hikes remain firmly on the table and the ⁠bank ​will act on signs that the initial shock is getting embedded in price setting. Consumers also took an increasingly dim view on ⁠overall economic growth, predicting a 2.1% contraction for the year ahead after seeing just ⁠a 0.9% ⁠decline a month earlier.

Income expectations remained unchanged for the year ahead but expectations for spending growth jumped to 5.1% ‌from ‌4.6%, the survey showed.

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