Consumers’ expectations of inflation developments have risen over the next 12 months. While in September the median expected inflation was 5.1, in October it was already 5.4 percent. Euro area residents expect inflation at three per cent over a three-year horizon.
“Temporary inflation”
The rhetoric from many central bankers about the temporality of inflation seems to have ended definitively already. The rate of increase in the price level at the elevated level has become fairly firmly established in the minds of the people of the euro area. According to a current survey by the European Central Bank, people think prices will rise by an average of 5.4 percent next year. That’s 0.3 percentage points higher inflation expectations than in September.
Pessimistic prospects
However, inflation returns to the 2 percent target are not expected by consumers in the euro area even over a three-year horizon. On the contrary, they believe that in three years prices will rise at a 3 percent pace. Heightened inflation expectations go hand in hand with a deteriorated economic outlook. Consumers reckon that eurozone economic growth will fall by 2.6 percentage points next year, and that unemployment will rise. Around 14 thousand people took part in the ECB survey.
