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(Bloomberg) — Inflation expectations of euro-area consumers jumped in March — a warning sign for the European Central Bank as it assesses the danger of a renewed price spike due to the Iran war.
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An indicator of where people see prices in a year’s time increased to 43.4 from 26.2 in February, the European Commission said Monday in its monthly business and consumer survey. Managers’ selling-price expectations also rose “sharply,” particularly in industry.
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“Selling-price expectations moved further beyond their long-term average in all business sectors,” the commission said.
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ECB officials are scrutinizing inflation expectations as they asses whether the jolts in energy markets will spill over into consumer prices more broadly. Data on Tuesday are expected to show euro-zone inflation quickened this month by the most since Russia invaded Ukraine in 2022.
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President Christine Lagarde warned last week that memories of four years ago could mean firms and workers react faster this time. Vice President Luis de Guindos said that if expectations start to de-anchor from the 2% goal, the central bank “will have to react.”
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The commission’s index is some way below the 64.3 peak reached in March 2022.
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A separate ECB survey published Friday showed expectations among consumers were falling as the war began. Prices were seen rising 2.5% over the next 12 months and the next three years — both down from the previous month.
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Market-based indicators have also reacted. Long-dated inflation swaps rose sharply in the early days of the war, before paring much of the move as traders started to price interest rate hikes.
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The 5y5y inflation swap, which represents the market’s expectation of five-year average inflation, starting in five years’ time, rose from 2.08% at the end of February to as high as 2.30%. It’s since declined back to about 2.16%.
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Shorter-dated swaps, which are particularly sensitive to commodity prices, have also climbed. The 1y1y swap is trading around 2.23%, the highest since mid-2024 and almost 50 basis points higher than at the end of February.
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—With assistance from James Hirai.
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English (US)