Eurozone Inflation Expectations Ease to Three-Month Low, ECB Survey Shows

Consumer inflation expectations across the euro area declined in May, signaling a modest improvement in price outlook despite ongoing geopolitical uncertainty, according to the latest European Central Bank (ECB) Consumer Expectations Survey.

Median inflation expectations for the next 12 months fell to 3.5% in May from 4.0% in both March and April, marking the lowest reading in three months. The previous two months had represented the highest short-term inflation expectations recorded since 2023.

Long-Term Inflation Expectations Remain Anchored

While short-term inflation expectations eased, longer-term expectations remained broadly stable.

Consumers expect inflation to average 2.9% over the next three years and 2.4% over the next five years, unchanged from the previous survey. The stability suggests households continue to believe inflation will gradually converge toward the ECB’s medium-term objective.

The ECB also noted that uncertainty surrounding one-year inflation expectations declined during May but remained above levels seen before the recent conflict in the Middle East.

Housing Market Expectations Moderate Slightly

Consumers expect residential property prices to increase by 3.6% over the next 12 months, marginally below the 3.7% forecast recorded in April.

Expectations for mortgage interest rates remained unchanged at 4.9%, indicating households anticipate financing conditions will remain relatively stable over the coming year.

Income Outlook Improves

The survey also showed improving expectations for household finances.

Consumers now expect nominal income growth of 1.0% over the next year, up from 0.8% in April, suggesting greater confidence in wage growth despite a challenging economic environment.

Growth Outlook Becomes Less Negative

Economic expectations also improved modestly.

Consumers now expect the eurozone economy to contract by 1.7% over the next 12 months, an improvement from the previous expectation of -2.2%.

Meanwhile, expectations for the unemployment rate edged slightly higher to 11.3%, compared with 11.2% in April, indicating that households remain cautious about labor market conditions.

The ECB closely monitors household inflation expectations because they can influence spending decisions, wage negotiations, and broader price dynamics.

The latest survey suggests consumers are becoming somewhat more optimistic about inflation while remaining cautious about economic growth and employment prospects.

Source: European Central Bank (ECB)