The fallout from the Middle East conflict is certainly taking a toll on households and the survey results definitely show it. As mentioned before, the prices we see on our screens reflect those of futures contracts. They are not the same as physical prices and prices at the pump, which have skyrocketed.
And the longer the war drags on, the spillover impact becomes more embedded into all parts of the economy. In turn, that is when consumers will have to deal with higher prices all around. And when prices go up, they almost never come back down even if the supply shock dissipates eventually.
The latest ECB consumer expectations survey for March highlights the negative outlook shared by consumers at the moment. Of note, the median estimate for inflation expectations for the year ahead has jumped to 4.0% – the highest since October 2023. That is a marked increase from the 2.5% reading in February.
And across all measures, inflation expectations have increased markedly as well. The long-term measure may not be as evident but continues to keep above the 2% inflation target level from the ECB.
Trouble, trouble.
