ECB Survey Uptick in Consumer Inflation Expectations

The euro area consumer outlook for inflation rose sharply in March according to the latest ECB Consumer Expectations Survey.

• Median expectations for prices over the next 12 months increased to 5.0% from 4.6% in February --the highest level recorded since the survey started in April 2020.
• Expectations for three years ahead rose to 2.9% from 2.4%, above the ECB's current projection for inflation to fall back to just above the 2% target. According to the survey, consumers expect nominal wage growth to increase to 1.3%, up from 1.2% in February, although the survey highlighted a demographic split as older workers expected to see declines.
• Consumers perceived inflation over the last 12 months at 9.9% - up from 8.7% in February and outpacing March's actual 6.9% y/y headline HICP reading.
• This data adds to concern that high inflation expectations are becoming more entrenched, with the ECB flagging in last week's post-meeting press conference: "some indicators have edged up and warrant continued monitoring".
• However, the March inflation expectations uptick looks unlikely to last. The EC's Economic Sentiment survey for April found inflation expectations cooled, with business selling price expectations slowing, led by industrial prices. Consumer price expectations which were the softest since December 2020 and services selling price expectations moderated for a third consecutive month.