Inflation expectations in the euro area have been rising recently and there is a general expectation that price pressures will remain strong for years to come. The ECB’s latest monthly survey of consumers showed that inflation expectations for both next year and in three years’ time rose further above the bank’s 2 per cent target in March, after four months of mostly falling prices. Inflation in the euro area is expected to be 5% in a year and 2.9% in three years. The data suggests that rising inflation expectations make further interest rate rises more likely.
Wage growth in the euro zone has been accelerating, with hourly labor costs in the euro zone rising by a record 5.7 percent in the fourth quarter of 2022 compared with the same period last year. In this case, if people expect price pressures to remain high for longer, it makes them more likely to push for higher wages and accept higher prices, stoking inflation。
Christine Lagarde, ECB president, said “significant upside risks to the inflation outlook” meant it still had “more room” to raise interest rates, especially after “wage increases in several European countries”. In addition, investors have recently begun betting that inflation in the euro zone will be higher than in the United States.
Post time: May-16-2023