A new survey by the European Central Bank on Tuesday, May 28th, showed that consumers in the Eurozone have lowered their inflation expectations for April. This has reinforced speculation that the European Central Bank will begin cutting interest rates next month.
According to Reuters, the survey indicates that consumers’ inflation expectations for the next 12 months in April were at 2.9%, down from 3.0% in March, marking the lowest level since September 2021.
At the same time, expectations for inflation over three years have also decreased from 2.5% to 2.4%, although still significantly higher than the European Central Bank’s 2% target.
Over the past year, the inflation rate in the Eurozone has rapidly declined, reaching 2.4% last month. However, the European Central Bank believes that for the remainder of this year, the inflation rate will largely remain at the current level before tightening monetary policy reemerges and reaches the target in 2025.
The European Central Bank stated in a release, “Younger respondents continue to report lower inflation expectations compared to older respondents, although views on inflation are converging across age groups.”
The significant slowdown in price rises has bolstered speculations that the European Central Bank will cut interest rates on June 6th. However, some policymakers warn against hasty actions for a second step, noting that there is still considerable price pressure and a long way to go to reach the target inflation rate.
With income expectations remaining stable and a slowdown in inflation expectations, consumers’ confidence in economic growth has started to rebound. Economic contraction is forecasted to be 0.8% next year, compared to the previous expectation of 1.1% contraction a month ago.
The European Central Bank also mentioned that they expect a slight increase in the unemployment rate, indicating overall stability in the labor market.