European Consumers’ Inflation Expectations Ease Despite Middle East War Uncertainty

In July, European consumers' expectations for inflation over the next 12 months decreased slightly from 3.0% to 2.9%, according to the European Central Bank (ECB). The survey, which included adult consumers from 11 euro-area countries, showed that their expectations for inflation three and five years ahead also declined from 2.8% to 2.7% and remained steady at 2.4%, respectively.

Lower-income and younger respondents still had higher inflation expectations than higher-income and older respondents. The ECB noted that uncertainty about inflation expectations over the next year remained unchanged and was higher than pre-war levels. This online survey was conducted between July 2 and July 27. Declines in consumer inflation expectations in July followed earlier drops in June.

The ECB reported on July 24 that median inflation expectations decreased significantly from 3.5% in May to 3.0% in June, and from 2.9% in May to 2.8% in June. The ECB's Professional Forecasters Survey, released on July 24, found that professional forecasters still expected inflation to remain at 2.7% in 2026, with a slight increase to 2.2% in 2027 and no change at 2.0% in 2028.

The survey suggested limited indirect and second-round effects of the Middle East war on inflation expectations, with the risk balance slightly more favorable in 2026 and more balanced thereafter. In contrast, American consumers' inflation expectations are less optimistic, with the University of Michigan's Surveys of Consumers reporting a 0.1 percentage point increase in year-ahead inflation expectations from 4.2% in July to 4.3% in August, while long-run expectations remained steady at 3.3%.