The European Central Bank's (ECB) September survey indicated that median respondents' inflation expectations rose to 4%, a high not seen since spring. This increase, up from August's 3.5%, was spurred by a surge in energy prices and record-high interest rates. The ECB subsequently adjusted its forecast, estimating a 2021 inflation rate of 5.6% and predicting rates of 3.2% in 2024 and 2.1% in 2025.
In the same month, eurozone consumer inflation expectations for the next year also jumped to 4%. This development has triggered the ECB's strategy for maintaining high interest rates, as revealed in its monthly consumer survey conducted after a summer that saw inflation exceed 5%. Bundesbank President Joachim Nagel, Latvia’s Martins Kazaks, and ECB chief economist Philip Lane all stressed the importance of vigilance and maintaining current rates until price growth stabilizes, following rate hikes that began in July 2022.
The survey further showed that consumers anticipate a higher economic contraction of 1.2% over the next year, compared to the previous expectation of 0.8%. This is fueled by an unexpected third-quarter output shrinkage of 0.1% within the currency bloc, hinting at a potential mild recession by late 2023.
Additionally, respondents expect unemployment to rise to 11.4%, mortgage interest rates to reach 5.4%, nominal incomes to grow by 1.2%, and home prices to increase by 2.2%. ECB officials will consider these consumer inflation expectations during their next policy meeting in December.
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