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3-Year Infl Expectations Remain Stubbornly Above ECB's 2% Target

EUROZONE DATA

The ECB's October Consumer Expectations Survey showed fairly flat but still-elevated inflation expectations vs September's Survey, with the mean results suggesting a modest bias to the upside: median 12-months ahead was unch at 4.0%/mean 5.6%; median 3-years ahead was also unch at 2.5%/mean up 0.1pp to a 7-month high 4.3%.

  • We wouldn't read deeply into the monthly survey results, but the broader context - following last month's upside surprise - is that near-term inflation expectations have stabilised and have headed slightly higher in the past few months, with the longer-term median expectations remaining at 2.5% for a third consecutive month, above the ECB's 2% target (vs in-line through early 2022).
  • Between the start of the survey in April 2020 and the eve of the Russia-Ukraine war, the 3Y inflation median expectation averaged 2.0% and mean 3.5%; since then those have averaged 2.7% / 4.3% respectively.
  • National divergences are visible under the surface, with German, Belgian, and Dutch median expectations dipping and between 2-2.5%, while French expectations have ticked higher and Spanish / Italian expectations around 3%. Notably the jump in Spanish inflation expectations, which we pointed out last month as having driven the overall eurozone reading higher, seems to have persisted.
  • Beyond the inflation data, consumers' economic growth expectations declined, the unemployment rate expectation was unchanged, with higher expectations of both the unemployed finding a job / employed respondents expecting to lose their jobs. In parallel, nominal income and expectations ticked slightly lower, with expected nominal consumption also dipping.
  • While the softer income/spending/growth outlook mean this is not a particularly worrying report for the ECB, the seemingly entrenched median long-term inflation expectations may be a lingering concern.


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The ECB's October Consumer Expectations Survey showed fairly flat but still-elevated inflation expectations vs September's Survey, with the mean results suggesting a modest bias to the upside: median 12-months ahead was unch at 4.0%/mean 5.6%; median 3-years ahead was also unch at 2.5%/mean up 0.1pp to a 7-month high 4.3%.

  • We wouldn't read deeply into the monthly survey results, but the broader context - following last month's upside surprise - is that near-term inflation expectations have stabilised and have headed slightly higher in the past few months, with the longer-term median expectations remaining at 2.5% for a third consecutive month, above the ECB's 2% target (vs in-line through early 2022).
  • Between the start of the survey in April 2020 and the eve of the Russia-Ukraine war, the 3Y inflation median expectation averaged 2.0% and mean 3.5%; since then those have averaged 2.7% / 4.3% respectively.
  • National divergences are visible under the surface, with German, Belgian, and Dutch median expectations dipping and between 2-2.5%, while French expectations have ticked higher and Spanish / Italian expectations around 3%. Notably the jump in Spanish inflation expectations, which we pointed out last month as having driven the overall eurozone reading higher, seems to have persisted.
  • Beyond the inflation data, consumers' economic growth expectations declined, the unemployment rate expectation was unchanged, with higher expectations of both the unemployed finding a job / employed respondents expecting to lose their jobs. In parallel, nominal income and expectations ticked slightly lower, with expected nominal consumption also dipping.
  • While the softer income/spending/growth outlook mean this is not a particularly worrying report for the ECB, the seemingly entrenched median long-term inflation expectations may be a lingering concern.


Keep reading...Show less