What's Happening
Eurozone households expect consumer prices to rise 4% over the next 12 months, up sharply from 2.5% in February, while wage growth expectations remain flat. The disconnect signals rising inflation anxiety despite labor market softness.
Market Impact
The jump in inflation expectations pressures the ECB to maintain a hawkish stance, supporting the euro and keeping European rate cuts on hold. This risks further demand destruction in an already fragile eurozone economy.
Broader Implications
Oil shocks and geopolitical risk are re-anchoring inflation expectations in Europe just as growth falters. The ECB faces a policy bind: cut rates to support demand, or hold firm to defend credibility on price stability.