(Bloomberg) -- Inflation expectations of consumers in the euro area failed to moderate for the first time since January, according to the European Central Bank — highlighting one of the remaining challenges in bringing price growth back to the 2% target.
Prices are seen advancing 2.8% over the next 12 months, matching the pace in the previous month’s poll, the ECB said Friday. The gauge for three years ahead remained at 2.3%. Expectations about future price developments play a key role in driving inflation.
Perceived inflation over the previous 12 months meanwhile declined “noticeably,” to 4.5% from 4.9%, the ECB said.
After a first cut in June, the Frankfurt-based central bank left borrowing costs unchanged on July 18 without giving any signal about what will happen next. Officials have instead stressed that economic data arriving before the meeting in September will be key in deciding whether to lower interest rates again.
Indicators of economic growth this week painted a surprisingly negative picture of the 20-nation economy. Reports on inflation and second-quarter output will be released later this month.
The central bank predicts inflation will reach its goal in the final quarter of 2025, but it has repeatedly warned of a “bumpy” road to that outcome.
The ECB’s survey showed consumers becoming slightly more pessimistic on the economy, foreseeing a 0.9% contraction over the next 12 months compared to 0.8% previously.
The poll also showed:
- Expectations for the unemployment rate 12 months ahead drop to 10.6% from 10.7% in May
- Nominal incomes are seen growing 1.4% — up from May’s 1.2%
- Expectations for nominal spending growth over the next year remained stable at 3.3%
- Consumers expect the price of their home to increase by 2.7% over the next 12 months — up from May’s 2.6%
- Expectations for mortgage interest rates edged down to 4.8% from 4.9%
--With assistance from Barbara Sladkowska.
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