Consumer expectations for inflation in the eurozone saw a sharp increase in March, sending warning signals to the European Central Bank as it considers the risk of a new round of price hikes due to the war in Iran.
According to Bloomberg, the index reflecting consumer expectations for prices one year ahead soared to 43.4 points from 26.2 in February. This increase comes from the European Commission’s monthly survey of businesses and consumers.
At the same time, expectations among business executives for selling prices also showed a sharp rise, particularly in the industrial sector.
The Commission notes that expectations for selling prices have risen well above the long-term average across all business sectors.
The Commission’s report was published ahead of the eurozone inflation data release, scheduled for tomorrow (12:00 Greece time), which is expected to show the largest acceleration since the Russian invasion of Ukraine in 2022.
According to analysts’ estimates, the Consumer Price Index is expected to jump to a rate of 2.7%, up from 1.9% in February.
It is important to note that consumer expectations for price trends remain far from the levels seen in March 2022, when the index had reached 64.3 points.
The President of the ECB, Christine Lagarde, stated last week that memories of the Russian invasion may lead to faster reactions from businesses and workers. Vice-President Luis de Guindos added that if expectations deviate from the 2% target, the central bank must respond.
Beyond consumer confidence, the conditions emerging from rising oil prices are beginning to be reflected in market indicators as well.
Long-term inflation swaps surged sharply in the early days of the war, before retreating somewhat as traders began to factor in corresponding interest rate hikes.
Specifically, the 5-year inflation swap, which represents the market’s expectation of average inflation over five years, rose from 2.08% at the end of February to 2.30%, before falling back to 2.16%.
Short-term swaps, which are more sensitive to commodity prices, also increased. The one-year swap is trading at about 2.23%, its highest level since mid-2024 and nearly 50 basis points above the level at the end of February.
