By Ed Frankl
In a recent survey by the European Central Bank (ECB), it has been found that inflation expectations in the eurozone have seen a notable increase in September. These findings come at a time when growth forecasts have taken a dip due to the prevalent gloomy economic climate.
According to the survey, the median expectations for inflation in the euro-area over the next 12 months have risen to 4.0% in September, up from 3.5% in August and 3.4% in July. Simultaneously, the ECB highlights that the economy is expected to contract by 1.2% in the upcoming year, compared to the previously forecasted 0.8% contraction in August.
The eurozone economy has been grappling with challenges such as high interest rates and a decline in global demand. Consequently, this has had a particular impact on the manufacturing sector of countries like Germany. While some experts believe that the ECB has already reached its peak in terms of interest-rate hikes as published inflation looms, the repercussions of high rates are still being felt throughout the broader economy.
The rise in inflation expectations further complicates the ECB’s task of curbing escalating prices. The survey also revealed that inflation expectations for three years ahead have remained unchanged at 2.5%, which is significantly higher than the ECB’s target of 2%.
In conclusion, amidst a challenging economic climate, the eurozone is experiencing an increase in inflation expectations while growth forecasts face downward revisions. The ECB continues to grapple with the impact of high interest rates on the wider economy and the daunting task of controlling rising prices.
Inflation Expectations and Perceptions Vary Among Age Groups
According to the ECB, there are noticeable differences in inflation perceptions and expectations between younger and older respondents. The data shows that younger participants, specifically those under 35, have lower inflation perceptions and expectations compared to their older counterparts.
In September, the ECB released its latest forecasts, stating that it expects inflation to reach 3.2% in 2024 and 2.1% in 2025. However, official statistics revealed that inflation actually dropped to 2.9% in October, down from 4.3% in September. Alongside this, the ECB predicts a modest growth rate of 1.0% in the eurozone’s gross domestic product for 2024 and 1.5% for 2025.
While consumers predict the unemployment rate for the next 12 months to increase slightly to 11.4%, compared to 11.1% in August, the ECB highlights that this indicates a relatively stable labor market given that their perceived current unemployment rate is also at 11.1%. In September, the published eurozone jobless rate stood at 6.5%, with the ECB projecting an average unemployment rate of 6.7% for both 2024 and 2025.
Additionally, consumers anticipate a nominal income growth of 1.2% over the next year, which aligns with the previous data from August. However, their spending expectations show an increase from 3.3% in August to 3.4%.