Consumers across the eurozone are now expecting significantly higher inflation, as rising energy prices linked to the war in the Middle East begin to affect household outlooks, according to the latest survey by the European Central Bank.
The ECB is paying close attention to these expectations as it weighs whether additional interest rate increases may be needed if inflationary pressure continues to grow, particularly as a result of the US-Israeli conflict with Iran and its impact on global energy markets.
The bank’s monthly survey shows that average expectations for inflation over the next 12 months jumped to 4% in March, compared to 2.5% in February. Expectations for inflation over the next three years also moved higher, rising from 2.5% to 3%.
This is well above the ECB’s official inflation target of 2%, making the figures particularly important for policymakers responsible for monetary decisions across the 21 countries using the euro.
The survey was carried out between March 5 and March 30, during the first weeks of the Middle East conflict, when oil and energy prices began climbing sharply.
The results suggest that consumers believe rising fuel and energy costs will not remain limited to those sectors, but will spread more broadly across the economy, affecting everyday goods and services as well.
Inflation in the eurozone has already accelerated, reaching 2.6% in March, with higher energy prices seen as one of the main drivers behind the increase.
The ECB is due to hold its next policy meeting on Thursday. For now, markets expect the central bank to leave interest rates unchanged while officials wait for a clearer picture of how the geopolitical tensions will affect prices and economic growth.
Particular attention will be on ECB President Christine Lagarde and whether she signals future tightening. Investors will be watching closely for any indication that the bank sees inflation risks becoming more persistent rather than temporary.
