ECB’s Consumer Expectations Survey for February indicated continuing decline in consumers’ median inflation perceptions over the past 12 months, marking a fifth consecutive month of decrease, settling at 5.5% down from 6.0% in January.

Furthermore, median expectations for inflation over the next 12 months have dipped to 3.1% from 3.3%. This level is the lowest recorded since the onset of Russia’s conflict with Ukraine in February 2022.

Expectations for inflation three years ahead remained stable at 2.5%.

Full ECB Consumer Expectations Survey results here.

In a newspaper interview, ECB Governing Council member Joachim Nagel expressed optimism about the current economic outlook, noting that “wage growth is expected to moderate as inflation continues to recede.” He highlighted that recent developments are “heading in the right direction.”

Nagel suggested that a first rate reduction in three weeks is “plausible,” provided that incoming data and new projections align with policymakers’ expectations. However, he cautioned against rushing into additional monetary easing, emphasizing, “We should not cut rates hastily and jeopardize what we have achieved.”

He also underscored the high level of uncertainty, stating, “Even if rates are lowered for the first time in June, that does not mean we will cut rates further” in subsequent meetings. Nagel stressed that ECB’s approach is not automatic, saying, “We are not on auto-pilot.”

In an interview with the Financial Times, ECB Chief Economist Philip Lane indicated that, barring major surprises, there is sufficient evidence to “remove the top level of restriction” in June, suggesting an initial reduction in the 4.00% deposit rate. He noted that the forthcoming data over the next few months will guide ECB in determining the pace at which further restrictiveness can be eased.

Lane acknowledged that the path to disinflation will be “bumpy and gradual.” He framed the debate for this year by stating that ECB still “needs to be restrictive all year long,” but within this “zone of restrictiveness,” there is potential to “move down somewhat.”

He added, “We don’t need the data to say normalization is a lock. What we do need the data to say is: is it proportional, is it safe, within the restrictive zone to move down.”

Looking ahead to next year, Lane mentioned that discussions about the “normalization” of monetary policy will be more pertinent when wage growth has visibly decelerated and the inflationary impacts of current fiscal measures have diminished.

Full interview of ECB’s Lane.