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Euro zone consumers see inflation slightly above ECB target for years

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-Euro zone households see inflation staying slightly above the European Central Bank’s 2% target for another three years, an ECB survey showed, as rate-setters struggle to convince the public that their plans for taming price pressures are on track.

While consumer expectations for inflation are by nature imprecise, they can influence wage demands, spending and saving.

They are also an important input in gauging whether the public has faith in the ECB achieving its inflation goal, amid a global debate about whether such targets should be raised.

The ECB’s Consumer Expectation Survey, carried out in August and released on Wednesday, showed the median respondent thought inflation would be 2.5% in three years’ time, up from 2.4% in the previous survey around a month earlier.

Consumers’ views about inflation in the coming 12 months showed a slight increase to 3.5%, from 3.4% in July.

The ECB has said that long-term inflation expectations from economists, investors and consumers are “at around 2%”, but cautioned that some projections have risen and should be monitored.

The central bank for the 20 countries that use the euro raised the rate it pays on bank deposits to a record-high of 4.0% last month as part of its bid to bring down inflation, which briefly hit double digits a year ago amid high energy costs and post-pandemic boom in demand, while supply chains were still disrupted.

The ECB now expects prices to rise by 5.6% this year, 3.2% in 2024 and 2.1% in 2025.

Wednesday’s survey also showed households took a slightly dimmer view of the economy, which they expected to contract by 0.8% in the coming 12 months, compared with 0.7% in July.

But they turned more optimistic about their income – seen growing by 1.2% from 1.1% – and raised their predictions for home price inflation, to 2.3% from 2.1%, for the first time since March.

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