Eurozone consumers see higher inflation ahead, says ECB

Inflation expectations among euro zone consumers continued to rise in September, even as economic growth and income forecasts fell sharply, a new European Central Bank survey showed on Wednesday.

Inflation has been hitting new highs month after month, raising fears that wages, still growing relatively slowly, will eventually follow rising prices, setting off a price-wage spiral that is difficult to overcome.

But the survey appears to indicate that inflation and income growth will remain misaligned, offering some relief to the ECB, which has already raised rates by 200 basis points in three months in its fastest-ever tightening cycle on record.

Eurozone consumers see inflation at 7.3% over the next 12 months, up from the 6.9% forecast in August, the ECB said in its Consumer Expectations Survey.

Three years later, inflation expectations have risen from 4.7% to 4.8% on average, suggesting little confidence among consumers that the ECB will be able to bring price growth back to its 2% target so far.

Long-term inflation expectations have been rising over the past 18 months, with consumers becoming more pessimistic about price growth well before Russia’s war in Ukraine.

Households expect their income to increase by just 0.6% next year, down 1% from the previous month, while spending expectations have held steady, suggesting consumers are hoping to utilize their savings.

Consumers are also more pessimistic about economic growth.

The survey showed they expect the economy of the 19-nation currency bloc to shrink by 2.4% over the next 12 months, the ECB said, a significant decline from the 1.7% contraction forecast in August.