Eurozone inflation outlook improves slightly

Based on responses from around 19,000 participants, the average expectation for inflation over the next 12 months declined to 2.6% from 2.8%. The drop suggests that concerns about rising prices moderated at the start of the year, News.Az reports, citing foreign media.

The ECB noted that lower-income households continue to perceive higher inflation than wealthier groups, a pattern observed since 2023. Meanwhile, uncertainty surrounding 12-month inflation expectations remained unchanged in January.

Longer-term expectations showed relative stability. Inflation forecasts three years ahead held steady at 2.6%, while five-year-ahead expectations edged down slightly to 2.3% from 2.4%.

Consumers’ outlook for economic growth in the euro area remained negative at minus 1.1%. However, income growth expectations improved modestly, rising to 1.2% from 1.1%.

Official data showed euro area inflation slowed to 1.7% in January, slipping below the ECB’s 2% medium-term target and giving policymakers greater flexibility. After reducing its deposit rate eight times since June 2024, the ECB has paused further rate cuts in recent meetings. Markets currently anticipate that the deposit rate, now at 2%, will remain steady in the near term.

The monthly survey includes respondents from Germany, France, Italy, Spain, the Netherlands and Belgium, which together account for roughly 85% of the euro area’s gross domestic product. Inflation expectations remain a key factor in shaping the ECB’s monetary policy decisions.