Inflation expectations:

• 1-year ahead 2.8% vs 2.8% prior
• 3-year ahead 2.6% vs 2.5% prior
• 5-year ahead 2.4% vs 2.2% prior
• Full report here

“Respondents in lower income quintiles continued to report on average slightly higher inflation perceptions and short-horizon expectations than those in higher income quintiles, a trend observed since 2023. However, the broad evolution of inflation perceptions and expectations remained relatively closely aligned across income groups.”

Actual inflation data eased recently which prompted the market to pare back the slightly hawkish bets it started to take in December. Having said that, growth has been surprising to the upside and the labour market continues to remain resilient with the unemployment rate hovering around record lows.

The German fiscal boost, the ECB rate cuts and the easing in uncertainty seen in 2025 could all be positive drivers for growth and eventually for inflation. That’s why the ECB members have been keeping all options on the table and giving the same odds to both a rate cut or a rate hike as the next move.