Consumer price expectations in the Eurozone have dropped to their lowest level since 2020, according to a European Commission index. The measure, which is part of a long-running economic sentiment survey conducted by Brussels officials, reflects consumers' responses to how they expect prices to develop in the coming year. Specifically, the index fell to 12.2 in May from 15 the previous month. Additionally, expectations on what businesses can charge in the next three months have also fallen, according to the report released on Tuesday.
The declines in price gauges for manufacturing, services, construction, and retail will be reassuring to European Central Bank officials in Frankfurt, who are working to prevent the recent inflation surge from becoming entrenched in the economy. ECB policymakers have signaled as many as three further interest-rate increases in their efforts to tame prices.
The overall measure of economic sentiment also dropped to a six-month low, suggesting that the Eurozone economy might be entering a more challenging phase. However, policymakers will likely take some comfort in the lower price expectations as they work to keep inflation under control.
This report coincides with a critical week for assessing Eurozone inflation, with the latest readings expected to show limited progress towards the ECB's 2% target. Economists are forecasting an inflation rate of 6.3% for the upcoming release on Thursday. The first national number of the week from Spain was more encouraging, with inflation there slowing to 2.9% in May, the lowest level since July 2021. Data will be released in France, Italy, and Germany on Wednesday, offering further insights into the state of inflation in the Eurozone.