A new ECB survey shows households are becoming less worried about near-term inflation, giving policymakers more room to move cautiously on interest rates.
Eurozone consumers reduced their expectations for inflation over the next year in May, offering a tentative sign that price fears are beginning to cool across the bloc after months of renewed pressure from energy markets and geopolitical uncertainty.
According to the European Central Bank’s latest Consumer Expectations Survey, households now expect inflation to stand at 3.5% over the next 12 months, down from 4.0% in April. Longer-term expectations remained unchanged, with consumers forecasting inflation of 2.9% in three years and 2.4% in five years.
The figures matter because inflation expectations play a central role in monetary policy. When households and businesses expect prices to keep rising, they may demand higher wages, increase prices pre-emptively, or accelerate purchases, all of which can make inflation harder to control. The latest survey suggests that while inflation remains above the ECB’s 2% target, the risk of a more entrenched inflation psychology may be easing.
The shift could give the ECB some breathing room as it weighs whether further interest-rate increases are needed. Policymakers have been navigating a difficult balance: keeping inflation under control without placing excessive strain on households, businesses, and already-fragile economic growth.
The survey also showed a modest improvement in consumer views on the broader economy. Expectations for economic growth over the next 12 months became less negative, while income expectations edged higher. At the same time, consumers still expect unemployment to rise slightly, underlining the uneven nature of the eurozone’s recovery.
Lower-income households continued to report higher inflation expectations than wealthier consumers, reflecting the heavier burden that food, energy, and housing costs place on families with tighter budgets. Younger respondents, meanwhile, remained less worried about inflation than older age groups.
For European markets, the data may strengthen the argument for a more measured ECB response in the months ahead. Inflation has not disappeared as a concern, and uncertainty remains elevated. But the latest consumer readings suggest that the eurozone’s inflation shock may be losing some of its force — a development that could shape the central bank’s next moves and the region’s economic outlook heading into the second half of 2026.
