In ECB’s November Consumer Expectations Survey, mean inflation expectations for the 12 months ahead dropped back to 7.3%, comparing to October’s 8.1% and September’s 7.3%.

Median inflation expectations for the 12 months ahead dropped to 5.0%, comparing to October’s 5.4% and September’s 5.1%.

Mean inflation expectations for the 3 years ahead dropped to 4.6%, comparing to October’s 4.9%, and September’s 4.8%.

Median inflation expectations for the 3 years ahead dropped to 2.9%, comparing to October’s 3.0%, and September’s 3.0%.

Full release here.

In the monthly Economic Bulletin, ECB said, “evidence from surveys and markets shows that forecasters continue to expect inflation to peak soon, with longer-term expectations remaining at around the ECB 2.0% target.” Still, “close monitoring is warranted given the further above-target revisions of some indicators”.

In the December Eurosystem staff macroeconomic projections, headline inflation in Eurozone ill fall from average 8.4% in 2022 to 6.3% in 2023, 3.4% in 2024, and then 2.3% in 2025. Headline inflation is expected to remain above the ECB’s target of 2.0% until mid-2025

Full economic bulletin here.

ECB Governing Council member Pablo Hernandez De Cos said yesterday, “we plan to continue increasing interest rates significantly in the next meetings.” Also, tightening will continue “until reaching sufficiently restrictive levels to ensure that the inflation returns to the 2% target over the medium term.”

“Keeping interest rates at tight levels will reduce inflation by dampening demand and will also protect against the risk of a persistent upward shift in inflation expectations”, he explained.

De Cos also noted that Since last meeting, markets have raised the expected terminal rate by 30bps to 3.4%. However, market rates incorporated a positive premium, and “the market’s genuine expectation of what the maximum level of the deposit facility rate would be is somewhat below that figure.”

ECB Governing Council member Olli Rehn said, “Policy rates will still have to rise significantly… This means significant rate hikes at this winter’s remaining meetings.”

Though he also admitted that it’s a fair argument that it takes time to reverse the a decade of stimulus.

“With the benefit of hindsight, there may be some truth in this argument, at least from the standpoint that we could thus have created more policy space to react if the euro zone economy falls into recession,” Rehn said.

ECB Governing Council member Mario Centeno said yesterday, “we are approaching the end of the current process of interest rate hikes, I believe that is true.”

Centeno said that “wage updates in Europe could make it difficult for prices to continue to fall” in the next two months, but “after that, inflation will fall again from March onwards.”

ECB Executive Board member Isabel Schnabel said in a speech “inflation will not subside by itself”. She added that preliminary data for December “point to a persistent build-up of underlying price pressures even as energy price inflation has started to subside from uncomfortably high levels.”

“To resolve today’s inflation problem, financing conditions will need to become restrictive,” she said. “Tighter financing conditions will slow growth in aggregate demand, which is needed to reduce the upward pressure on prices that has resulted from the long-lasting damage to the euro area’s production capacity inflicted by the energy crisis.”

“Monetary policy would need to raise interest rates even more forcefully to restore trust in the economy’s nominal anchor. In the 1970s, financing conditions tightened to an extent that made capital accumulation prohibitively expensive.”

Full speech here.

In an economic bulletin article, ECB said, “Looking ahead, wage growth over the next few quarters is expected to be very strong compared with historical patterns.”

“This reflects robust labour markets that so far have not been substantially affected by the slowing of the economy, increases in national minimum wages and some catch-up between wages and high rates of inflation.”

“Beyond the near term, the expected economic slowdown in the euro area and uncertainty about the economic outlook are likely to put downward pressure on wage growth.”

Full article here.