Eurozone consumers reduced their short-term inflation forecasts, according to ECB data
There has been a recent decrease in Eurozone consumers' inflation expectations for the next year, according to the European Central Bank (ECB) Consumer Expectations Survey. In May 2025, median inflation expectations for the next 12 months fell by 0.3 percentage points to 2.8%, and this trend continued into June, with inflation expectations further easing to 2.6%, matching the level seen at the start of the year.
Several factors might influence this downward trend in inflation expectations. The latest Eurozone flash HICP inflation for July 2025 was 2.4%, slightly above but closer to the ECB's 2% inflation target, indicating easing inflation pressures. The ECB survey also noted less negative economic growth expectations over the next 12 months and a decrease in expected unemployment, which may reduce inflationary anxieties.
Nominal income growth expectations increased, while spending growth expectations decreased, potentially reflecting consumer caution that moderates inflation pressures. Expectations for home price increases remained steady or slightly declined, and mortgage interest rate expectations decreased, also factors that can temper inflation expectations.
The ECB has placed great emphasis on expectations and closely watches an array of indicators. The ECB's decision to keep borrowing costs steady this month suggests confidence in maintaining inflation at its 2% target. The ECB believes that inflation is now back at its 2% target and will remain there over the medium term.
Interestingly, higher income individuals lowered their expectations for nominal income growth, while lower income groups raised them. The ECB's survey of 19,000 adults indicated that the recent episode of runaway price growth may be over. Consumers' expectations for nominal income growth over the next 12 months were steady at 1.0% last month. Long-term inflation expectations (3 to 5 years) have been relatively stable, around 2.1%-2.4%.
Overall, the trend of declining short-term inflation expectations seems aligned with recent economic indicators suggesting easing inflation pressures, moderated consumer sentiment, and better labor market expectations in the Eurozone. The ECB reported these changes in consumers' expectations for nominal income growth. The ECB made no changes to borrowing costs this month, indicating confidence in maintaining the current economic trajectory.
The latest trends indicate that inflation expectations have been easing, potentially impacting the investment landscape in financial markets, especially those related to the Eurozone. As more individuals focus on personal-finance management, understanding wealth-management strategies may become crucial for many businesses, as the economic situation seems to favor lower short-term inflation and stable long-term inflation expectations.
