FRANKFURT- Euro zone consumers have slashed their inflation expectations, a European Central Bank survey showed on Tuesday, in comforting news for the ECB’s efforts to contain prices.
The Consumer Expectations Survey (CES) is used by policymakers to gauge whether households have faith in the ECB’s ability to hit its 2 percent inflation goal, which may affect their wage demands and attitude towards saving and spending.
The latest round of the poll, carried out in November, showed the median household expected prices to grow by 3.2 percent in the following 12 months, down from 4.0 percent a month earlier.
Expectations for inflation three years ahead also came down: to 2.2 percent from 2.5 percent .
This is likely to mirror a sharp fall in inflation in November as well as a contraction in lending as a result of the ECB’s steep increases in interest rates.
Meanwhile, Euro zone government bond yields rose on Monday after ECB officials said cutting interest rates too fast may prove self-defeating.
Markets have been quick to bet the ECB will lower interest rates this year as inflation appears close to falling back towards target, but policymakers have urged caution and tried to downplay expectations.
The central bank’s Chief Economist Philip Lane said in an interview with Italian daily Il Corriere della Sera published on Saturday that cutting rates too fast could fuel a new wave of inflation, forcing the ECB to then raise rates even more.
“A false dawn, too rapid a recalibration, can be self-defeating,” Lane said.
ECB euro-short term interest rate (ESTR) forwards fully price the first move in April with the chances of a cut in March at about 30 percent
In total, markets are pricing in around 148 basis points (bps) of rate cuts this year from 155 bps late on Friday.
“It’s interesting to see one of the more dovish members of the governing council not overly dovish,” said Anders Svendsen, chief analyst at Nordea, on Lane’s comments.
