(Bloomberg) -- Inflation expectations of consumers in the euro area decreased in August, according to the European Central Bank — bolstering the growing case for another reduction in interest rates next month.
Prices are seen advancing 2.7% over the next 12 months, down from 2.8% in July and the lowest level since September 2021, the ECB said Friday in its monthly poll. The gauge for three years also dipped, to 2.3% from 2.4%.
Expectations about future price developments play a key role in driving inflation, with policymakers still looking for more evidence that their 2% target will be met sustainably late next year as currently planned.
While inflation is expected to ease to — or, for the first time since 2021 — even below that goal in September, the trend is likely to reverse in the final months of the year due to base effects. Data earlier Friday showed price gains moderated more than anticipated this month in France and Spain, coming in well below 2% in each country.
The ECB has lowered rates twice this year and signaled further reductions, without giving precise guidance on the timing. This week’s disappointing indicators for economic activity in the 20-nation bloc and weaker-than-expected pay increases in the second quarter have fueled speculation that euro-area officials may lower borrowing costs again when they meet in less than three weeks – instead of waiting until December.
The ECB’s survey showed consumers becoming slightly less pessimistic on the economy, foreseeing a 0.9% contraction over the next 12 months compared with a 1% retreat previously.
The poll also showed:
- Expectations for the unemployment rate 12 months ahead dropped to 10.4% from 10.6% in July
- Nominal incomes are seen growing 1.2%
- Expectations for nominal spending growth over the next year remained stable at 3.2%
- Consumers expect the price of their home to increase by 2.7% over the next 12 months — up from July’s 2.6%
- Expectations for mortgage interest rates stayed at 4.8%
--With assistance from Barbara Sladkowska.
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