ECB survey shows rising inflation expectations despite energy price falls

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Euro zone consumer expectations for inflation edged up again in December, a European Central Bank survey showed on Tuesday, indicating that recent interest rate hikes and falling energy prices have not yet tempered price growth fears.

Inflation peaked at over 10% in October but has been in rapid decline since on lower gas prices, even if underlying price growth is still inching up.

Median inflation expectations over the next three years rose to 3% in December from 2.9% a month earlier, the ECB said based on a survey of about 14,000 adults in six of the euro zone’s biggest countries. But median expectations over the next 12 months held steady at 5%.

The ECB has raised rates by 3 percentage points since July and promised another 50 basis point move in March, looking to restrict the economy enough to tame inflation expectations.

The problem is that when expectations stay high, workers and businesses adjust their wage-setting behaviour, entrapping rapid price growth and making it harder for the ECB to get back to its 2% target.

The survey also showed a moderate improvement in growth and wage expectations and slightly reduced expectation for unemployment.

via Reuters

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