FRANKFURT (Reuters) – Euro zone consumers lowered their near-term inflation expectations last month but continued to see economic contraction ahead, indicating that households remain relatively downbeat on the bloc’s prospects, an ECB survey showed on Friday.
Median inflation expectations over the next 12 months eased to 2.6% in January from 2.8% in the previous month while expectations three years out remained unchanged at 2.4%, above the ECB’s own 2% target, according to the European Central Bank’s Consumer Expectations Survey.
The drop came as households lowered their nominal income growth expectation to 0.9% from 1.1%, indicating that families anticipate a drop in their inflation-adjusted earnings, which would then be a drag on growth.
The muted figures add to the case for more interest rate cuts from the ECB, and a move next Thursday is seen as largely a done deal with the debate already focusing on how much more the ECB would have to do in subsequent months.
Investors now anticipate between two and three cuts after the March 7 move, with bets oscillating mostly in response to news out of Washington on trade policy.
Although consumers were less pessimistic on growth, they continued to see the economy shrinking by 1.1% in the next year after predicting a 1.3% contraction in December.
(Reporting by Balazs Koranyi; editing by Mark Heinrich)
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