Eurozone consumers turned more optimistic about inflation and the economy in May, according to the ECB’s latest Consumer Expectations Survey. One-year inflation expectations fell sharply to 3.5% from 4.0%, while expectations for inflation three and five years ahead were unchanged at 2.9% and 2.4%, respectively. The results suggest households expect the recent inflation surge to ease without significantly altering longer-term price expectations.
The survey also pointed to a modest improvement in the growth outlook. Consumers now expect the economy to contract by -1.7% over the next 12 months, an improvement from the previous expectation of a -2.2% decline. Income growth expectations edged up from 0.8% to 1.0%, indicating slightly greater confidence in household finances, although expectations for the labor market remained subdued with unemployment concerns still elevated.
The findings add to evidence that the easing in energy prices and improving geopolitical backdrop have begun to lift consumer confidence. For the ECB, the decline in short-term inflation expectations is encouraging as it suggests recent price shocks are not becoming embedded in household expectations. At the same time, stable medium-term inflation expectations and still-weak growth expectations support the central bank’s cautious approach, allowing policymakers to monitor incoming data rather than feeling pressured to tighten policy aggressively again in the near term.
| Indicator | May | April | Direction |
|---|---|---|---|
| One-Year Inflation Expectations | 3.5% | 4.0% | ↓ Improved |
| Three-Year Inflation Expectations | 2.9% | 2.9% | Unchanged |
| Five-Year Inflation Expectations | 2.4% | 2.4% | Unchanged |
| Expected Economic Growth (Next 12 Months) | -1.7% | -2.2% | ↑ Less pessimistic |
| Expected Nominal Income Growth | 1.0% | 0.8% | ↑ Improved |
