Eurozone consumers lower short-term inflation expectations but still expect future economic contraction

On February 28th, Jinshi Data News, a survey by the European Central Bank on Friday showed that consumers in the eurozone have lowered their near-term inflation expectations from last month, but continue to believe that the future economy will shrink, indicating that households remain relatively optimistic about the outlook for the eurozone. Consumer expectations survey shows that the median inflation expectation for the next 12 months in January has dropped from 2.8% in the previous month to 2.6%, while the median inflation expectation for 3 years remains unchanged at 2.4%, higher than the European Central Bank’s target of 2%. The decline is due to households lowering their nominal income rise expectations from 1.1% to 0.9%, indicating that households expect their income adjusted for inflation to decline, thereby dragging on economic rise. The bleak data provides further reasons for the European Central Bank to further reduce interest rates. Currently, investors expect the European Central Bank to cut interest rates two to three more times after the rate cut on March 7. Despite the reduced pessimism of consumers about the economic rise, after predicting a shrinkage of 1.3% in December last year, they still expect the economy to shrink by 1.1% next year.