Economy April 28, 2026 04:02 AM

Euro-area consumers lift near-term inflation expectations sharply, ECB survey finds

One-year and three-year inflation bets jump well above the ECB target as consumers turn more pessimistic on growth

By Marcus Reed
Euro-area consumers lift near-term inflation expectations sharply, ECB survey finds

Euro zone household inflation expectations climbed notably in March, according to the European Central Bank's monthly Consumer Expectations Survey. One-year expectations rose to 4.0% and three-year expectations to 3.0%, both exceeding the ECB's 2% medium-term goal. Five-year expectations edged only slightly higher to 2.4%. The survey also showed consumers forecasting a sharper contraction in overall economic activity and higher intended spending growth for the coming year.

Key Points

  • One-year inflation expectations rose to 4.0% in March from 2.5% a month earlier, while three-year expectations increased to 3.0% from 2.5% - both above the ECB's 2% medium-term target.
  • Five-year inflation expectations edged to 2.4% from 2.3%, providing some comfort that longer-term inflation outlook remains near target.
  • Consumers forecast a 2.1% contraction for the year ahead after a 0.9% decline a month earlier; income expectations remained unchanged while expected spending growth rose to 5.1% from 4.6%.

The European Central Bank's latest monthly Consumer Expectations Survey showed a pronounced rise in euro-area consumers' inflation expectations in March, a development that will be closely watched by policymakers concerned that higher energy costs could entrench faster price growth.

Inflation expectations

The survey recorded one-year inflation expectations at 4.0% in March, up from 2.5% in February. Expectations for three years ahead increased to 3.0% from 2.5% over the same interval. Both figures sit well above the ECB's 2% medium-term target. Longer-term expectations, for five years out, were largely stable, moving only to 2.4% from 2.3%.

What the ECB is watching

The bank has been monitoring the fallout from a recent energy price shock. The survey noted that inflation has surged since the war in Iran pushed up energy prices, and officials at the ECB are wary that this shock could produce second-round effects that embed higher inflation into price-setting behavior.

With an ECB policy meeting scheduled for Thursday, the bank is expected to hold interest rates steady for now. However, officials are likely to signal that further rate increases remain a possibility and that they will move if evidence mounts that the initial energy-related shock is becoming embedded in broader inflation dynamics.

Economic outlook and household finances

Alongside inflation expectations, consumers' views on the economy turned more negative. The survey found households now expect a 2.1% contraction for the year ahead, compared with a 0.9% decline a month earlier. Income expectations for the year ahead held steady, showing no change. At the same time, consumers reported higher expectations for spending growth, which rose to 5.1% from 4.6%.


The survey results present a mixed signal for policymakers: near-term inflation expectations have moved materially higher, yet longer-term expectations remain close to target. At the same time, deteriorating growth expectations and stronger intended spending growth add complexity to the policy outlook.

Risks

  • Higher near-term inflation expectations could lead to second-round effects in price-setting if businesses and households begin to act on those expectations - this primarily affects inflation-sensitive sectors and bond markets.
  • Rising energy costs linked to the war in Iran have driven the surge in inflation expectations, creating uncertainty for sectors exposed to energy price volatility such as transport, manufacturing and logistics.
  • A deteriorating consumer view on overall economic growth - projecting a 2.1% contraction for the year ahead - raises downside risk for demand-driven sectors including retail and consumer services.

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