Euro area inflation expectations down for second month

Median consumer inflation expectations in the Eurozone fell for a second consecutive month to 2.6% in June 2025, the lowest in four months, compared to 2.8% in May, reflecting a continued cooling in perceived price pressures across the bloc.

Expectations for inflation three years ahead remained steady at 2.4%, while five-year expectations held firm at 2.1% for the seventh consecutive month—both close to the European Central Bank’s 2% target, reinforcing the view that inflation expectations remain broadly anchored.

Notably, younger respondents continued to report lower inflation perceptions and expectations than older respondents, although the gap was narrower than in previous years, suggesting a gradual convergence in generational outlooks. This narrowing may reflect more stable prices in key spending categories for younger households, such as housing and transport.

Meanwhile, consumers’ expectations for nominal income growth over the next 12 months held steady at 1% in June, signaling a cautious outlook on wage dynamics amid lingering labor market uncertainties.

On the other hand, expected nominal spending growth declined further to 3.2% from 3.5% in May, marking the lowest level since early 2023 and possibly indicating increased consumer caution or a shift toward precautionary saving behavior as economic uncertainties persist.

In terms of the broader economic outlook, growth expectations for the next 12 months became slightly less negative (-1.0% vs -1.1%), suggesting mild improvement in sentiment, albeit from subdued levels. Expectations for the unemployment rate 12 months ahead also edged down marginally to 10.3% from 10.4%, indicating cautious optimism about labor market conditions.

Taken together, the survey results may provide the ECB with further reassurance that inflation expectations are stabilizing without triggering a sharp deterioration in economic sentiment. However, the decline in spending expectations and subdued income growth projections highlight the fragile nature of the recovery and may support the case for maintaining accommodative monetary policy in the near term.