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Inflation expectations go down in Euro area for February

The perceived inflation rate decreased to 5.5% in February from 6% in January annd became the lowest level since the onset of Russia’s conflict with Ukraine in February 2022. Expectations for inflation over the next 12 months also decreased to 3.1 per cent from 3.3 per cent, marking the lowest level since the start of Russia’s conflict with Ukraine in February 2022. Meanwhile, expectations for inflation three years ahead remained steady at 2.5 per cent. Despite remaining below perceived past inflation rates, uncertainties regarding future inflation expectations remained unchanged.

While perceived inflation rates are decreasing, expectations for future inflation are also slightly declining, indicating a level of stability in consumer outlook. Consumer sentiment reflects a positive outlook on income growth but a more cautious approach towards spending, possibly influenced by inflation concerns. The gradual decline in perceived and expected inflation rates suggests a trend towards stabilization, albeit uncertainties persist. The balancing act between income growth optimism and spending moderation highlights the impact of inflation perceptions on consumer decisions.

Continued monitoring of inflation indicators and consumer expectations is vital for assessing economic stability and planning appropriate interventions. Clear communication regarding inflation projections and policy measures can help manage consumer expectations and market uncertainties. Flexibility in monetary policies to address changing inflation dynamics while supporting sustainable economic growth and consumer welfare.

The Euro Area’s inflation rates and consumer expectations are showing trends of moderation and stability, with a cautious yet optimistic outlook on income growth. Navigating the balance between inflation concerns and consumer behavior will be crucial for policymakers to sustain economic resilience and consumer confidence in the evolving economic landscape. Continued monitoring, transparent communication, and adaptive policy responses will be key in addressing uncertainties and supporting sustainable growth in the region.

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