European Consumers’ Inflation Expectations Ease Despite Middle East War Uncertainty

European consumers’ inflation expectations inched down in July, the European Central Bank said in a Friday (Aug. 21) press release.

Consumers’ median expectations for inflation over the next 12 months decreased from 3.0% in June to 2.9% in July, while those for inflation three years ahead declined from 2.8% to 2.7%, according to the release.

Their median expectations for inflation five years ahead remained unchanged at 2.4%, per the release.

Lower-income respondents continued to report higher inflation expectations, on average, than higher-income respondents. Younger respondents continued to report lower inflation expectations than older respondents, according to the release.

“Uncertainty about expectations for inflation over the next 12 months was unchanged and remained higher than the level prevailing before the start of the war in the Middle East,” the ECB said in the release.

This online survey included adult consumers from 11 euro-area countries and was conducted between July 2 and July 27, per the release.

The declines recorded in July followed drops seen in June.

The ECB reported July 24 that median expectations for inflation over the next 12 months decreased “significantly,” from 3.5% in May to 3.0% in June; those for three years ahead decreased from 2.9% in May to 2.8% in June; and those for five years ahead remained unchanged at 2.4%.

The most recent ECB Survey of Professional Forecasters, which was reported by the ECB on July 24, found that professional forecasters’ expectations for headline inflation in 2026 were unchanged at 2.7%, those for headline inflation in 2027 moved up by 0.1 percentage points to 2.2% and those for headline inflation in 2028 were unchanged at 2.0%.

“Responses to a special question on the war in the Middle East suggested limited expected indirect and second-round effects, which were concentrated in 2026,” the ECB said of its survey of professional forecasters. “For inflation, the balance of risks was tiled somewhat to the upside in 2026 and more balanced thereafter.”

American consumers’ inflation expectations are less optimistic. The preliminary results for August of the University of Michigan’s Surveys of Consumers found that American consumers’ year-ahead inflation expectations ticked up from 4.2% in July to 4.3% in August, while their long-run inflation expectations held steady at 3.3%.