Europe’s Inflation Anxiety Is Fading More Quickly Than Prices

Euro-zone inflation remains near a historic high, but consumer expectations about the path for prices have largely receded back to their long-term norm.

In Germany, Italy and Spain — three of the currency bloc’s top four economies — anxiety at inflation over the next year is close to or below the average since the euro was introduced in 1999, European Commission data show.

That will come as a relief to the European Central Bank, which has strived to keep expectations about future prices grounded and will on Thursday release its monthly survey on the views of the region’s 350 million citizens.

But while taking heart from the improvements revealed by the Commission, inflation is nowhere near policymakers’ comfort zone. In France, for one, consumers remain more alarmed about prices than usual. That’s the case, too, in Croatia, which joined the euro club in January.

For that reason — even with inflation returning to single digits and natural-gas prices slumping — officials say interest rates must still rise significantly. Here’s what’s influencing inflation views in the euro area’s biggest economies, as well as its newest member.


A century after hyperinflation destroyed the economy, the fear of spiraling prices remains part of many Germans’ DNA and explains why the average level of concern is higher than in most European countries. The government’s gas-price cap has taken the sting out of the latest inflationary episode, which saw price gains top 11%. And while that measure is limited, unusually warm winter weather is helping too.


Consumers have benefited from some of Europe’s most generous state support to offset the jump in energy prices. But concern has risen into 2023 as the government scrapped gasoline and diesel discounts and pared back limits on how much household bills can rise.


While inflation is among the region’s quickest, Italians are more worried about the impact of higher ECB rates on economic growth and the state’s ability to finance its mammoth public-debt load. The new government, led by right-wing Prime Minister Giorgia Meloni, has spent about €75 billion to shield families and businesses from the worst of the energy-price hikes, including tax cuts and discounts on fuel at the pump.


Spain announced a new batch of measures worth €10 billion to maintain downward pressure on prices in 2023 after inflation eased rapidly in recent months. At the turn of the year, Prime Minister Pedro Sanchez removed an expensive fuel subsidy, but introduced new tax breaks on staples to ease food inflation that’s hovering around 15%. His government also retained a series of energy-tax cuts and plans to ask Brussels for an extension of a gas-price cap for the Iberian peninsula.


Adopting the common currency this month has prompted some retailers and service providers in the euro zone’s 20th member to raise prices, adding to consumers’ concerns. Prime Minister Andrej Plenkovic last week urged businesses to return prices to December levels and threatened them with unspecified sanctions should they fail to comply.

Source:  Bloomberg

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