They create relief but also disturb European Central Bank new consumer ratings inflation and the labor market outlook just a week before the meeting, which is expected to raise interest rates by 50 basis points to 3%.

In particular, according to the ECB’s monthly survey of some 14,000 consumers in the eurozone’s six largest economies – Belgium, France, Germany, Spain, Italy and the Netherlands – consumer inflation expectations have fallen significantly, possibly strengthening the case for slowdown in growth. interest rates.

Expectations for the next three years fell to 2.5% in January from 3% in the corresponding December survey and to the lowest level since May 2022, while expectations for the next 12 months also fell as consumers ‘see’ lower inflation 4.9% compared to 5% previously.

However, wage growth expectations continued to strengthen, reinforcing the ECB’s fears that wage growth would slow down efforts to control prices.

Households on average expect their nominal income to grow by 1.3% over the next 12 months, a modest increase given high price inflation but above the 1% recorded in the December survey.

ECB officials are forecasting nominal wage growth of around 5% this year, the fastest level in many years, which is a “headache” in determining the trajectory of interest rates.

ECB officials forecast nominal wage growth of around 5% this year.

So the above means that, as expected, while headline inflation will decline relatively quickly, underlying price pressures will continue to rise, suggesting that high inflation could remain much more resilient than expected.

The downward trend in inflation expectations shown by the ECB survey comes at a time when voices within the Council are strengthening. for the need for higher interest rates, while investors and international houses estimate that the final interest rate will be at least 4%, following new data last week that showed an unexpected increase in structural inflation in the euro area in February to its historical high of 5, 6%.

However, it should be noted that the survey was conducted from January 5 to February 2, before this inflationary surprise. Significantly, however, ECB chief economist Philip Lane said on Monday that this study, along with other data such as April and May inflation and first-quarter GDP, should guide the interest rate decision at the May meeting.

As a 50 basis point increase in ECB interest rates at the March 16 meeting is considered inevitable, there have been many announcements in recent days about what steps should be taken after March.

Lane said on Monday that “current information on underlying inflationary pressures suggests that it would be appropriate to raise interest rates after the March meeting,” while ECB chief Christine Lagarde also suggested in an interview on Sunday that further interest rate hikes are highly likely. , because “inflation is a monster that we must beat on the head.”

For his part, the head of the Austrian central bank, Robert Holzmann, called for four successive ECB rate hikes of 50 basis points, bringing the final rate to 4.5% (from 2.5% today).

After Morgan Stanley, Bank of America, Danske Bank and Barclays raised their estimates for the ECB’s final interest rate to 4% last week, and Citigroup yesterday made a similar estimate, now suggesting a 50mn bp increase. not only this month, but also at the meeting on May 4, where in July the rate reached 4%, not excluding further increases in the future. Economists at Nomura raised their ECB final interest rate forecast to 4.25% from the 3.5% they had previously seen.