Consumer inflation expectations in Germany did not fall any further in February. Rather, the inflation rate expected for the next 12 months will rise slightly from 5.9 to 6.0 percent, according to data on the Bundesbank’s website. However, it is still well below the peak of last autumn of a good 8 percent. Longer-term inflation expectations for the next five years also rose again slightly and now stand at 5.1 percent.
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 in the medium term. However, high energy prices and supply problems in world trade have caused expected and actual inflation to rise sharply.
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)