Consumer inflation expectations in Germany rose again in March. Looking ahead to the next twelve months, the expected rate of inflation has risen from 6.0 percent to 6.2 percent, according to data on the Bundesbank’s website on Friday. In January, inflation expectations were 5.9 percent.
Despite the recent increases, consumer inflation expectations are still well below the high of a good 8 percent seen in autumn. Longer-term inflation expectations for the next five years are said to have remained at 5.1 percent in March.
Inflation expectations have been unusually high for some time. Before the corona pandemic and Russia’s attack on Ukraine, the expected inflation was between two and three percent. That was relatively close to the European Central Bank’s (ECB) target of two percent for the entire euro zone in the medium term. However, high energy prices and supply problems in world trade have caused expected and actual inflation to rise sharply. Recently, inflation expectations have also been fueled by rising food and service prices.
For the ECB’s monetary policy, inflation expectations play at least as great a role as actual inflation. Because modern monetary policy works primarily by controlling expectations. If private households expect high inflation, they usually demand more wages and salaries, which can further fuel the actual depreciation of money. (dpa)