Eurozone households expected consumer prices to rise 4% over the next 12 months in April, unchanged from March and well above levels recorded before the onset of the conflict in the Middle East, according to a European Central Bank survey released Friday.
The survey, which polled 19,000 adults across the 20-nation currency bloc between April 2 and May 4, found that one-year-ahead inflation expectations held steady at a level significantly elevated by the disruption to energy supplies since fighting began in the Middle East. Expectations for inflation three years out eased slightly, the ECB said.
The persistence of elevated household expectations is likely to reinforce market expectations that the ECB will raise its key interest rate when officials next meet on June 11. Investors are pricing in a move to 2.25% from the current 2%.
At their April meeting, ECB officials left rates unchanged. But an account of the gathering released last week showed that a number of policymakers were ready to back a hike, according to the minutes.
Officials have said they would act if there are signs that workers expect the pickup in inflation to become entrenched and are likely to secure higher pay increases as a result, potentially prompting businesses to raise prices further.
Yet the survey also contained a signal that may temper those concerns. Households expect their incomes to grow at a much slower pace than they anticipated a month earlier. Consumers see income growth of 0.8% over the coming 12 months, down sharply from the 2% they expected in March.
The ECB’s own tracker of recent wage agreements also points to only a modest rise in wages this year. However, officials have said they expect pressure for larger wage deals to build as the Strait of Hormuz remains largely closed and energy prices stay high.
The survey results underscore the difficult position facing the ECB as it weighs whether higher interest rates can anchor inflation expectations without further squeezing households whose real incomes are under pressure from elevated energy costs driven by the ongoing conflict.