Euro Zone Consumers Lift Near-Term Inflation Expectations, Reinforcing View That ECB Has Finished Cutting Rates

Euro zone consumers nudged their short-term inflation expectations higher in October but kept medium- and long-term views broadly unchanged, according to a European Central Bank (ECB) survey released Friday. The results support market bets that inflation is stabilizing near target and that the ECB likely has no need to deliver further rate cuts.

Inflation has hovered around the ECB’s 2% target for much of this year, a notable achievement after a decade of persistently weak price growth followed by a post-pandemic surge that pushed inflation above 10%. Policymakers continue to expect inflation to remain close to target over the medium term.

According to the survey:

• 1-year inflation expectations rose to 2.8%, from 2.7% in September
• 3-year expectations held steady at 2.5%
• 5-year expectations were unchanged at 2.2%

The data, based on responses from 19,000 adults in 11 euro zone countries, aligns with policymakers’ recent commentary that inflation risks are receding and that domestic price pressures, while still present, are easing toward target.

This backdrop explains why financial markets are pricing almost no chance of a rate cut next month, and only about a one-in-three probability of further easing in 2025. Many economists now believe the ECB’s rate-cut cycle has reached its floor after the bank halved the deposit rate over the past year.

Income and spending expectations painted a similar picture of stability:

• Expected income growth over the next year ticked up to 1.2% from 1.1%
• Expected spending growth held steady at 3.5%

While the ECB has kept the option of additional cuts on the table, officials have stressed there is no urgency to adjust policy further. Some policymakers have even suggested that the central bank may be done cutting altogether if inflation continues to behave in line with forecasts.