FRANKFURT, April 28 (Reuters) – Euro zone consumers sharply raised their inflation expectations in March, a key European Central Bank survey indicated in a worry for policymakers who fear that high energy costs could push up expectations and make rapid price growth self-perpetuating.
Inflation has surged since the war in Iran pushed up energy prices and the ECB is now nervously watching to see if this shock creates second-round effects, necessitating policy tightening.
Inflation expectations for one year ahead jumped to 4.0% in March from 2.5% a month earlier while bets for three years out rose to 3.0% from 2.5%, both well above the ECB’s 2% medium term target, the bank’s monthly Consumer Expectations Survey showed on Tuesday.
However, policymakers may take some comfort in expectations for five years ahead, which only moved to 2.4% from 2.3%.
Meeting on Thursday, the ECB is expected to keep interest rates unchanged for now but will likely make clear that rate hikes remain firmly on the table and the bank will act on signs that the initial shock is getting embedded in price setting.
Consumers also took an increasingly dim view on overall economic growth, predicting a 2.1% contraction for the year ahead after seeing just a 0.9% decline a month earlier.
Income expectations remained unchanged for the year ahead but expectations for spending growth jumped to 5.1% from 4.6%, the survey showed.
(Reporting by Balazs Koranyi;Editing by Alison Williams)
