A recent survey reveals that consumer inflation expectations in the Eurozone have dropped to their lowest level in three years, nearing the European Central Bank’s (ECB) target of 2%. According to a monthly survey conducted by the ECB in September, involving 19,000 consumers, expectations for price increases over the next 12 months have declined to 2.4%, down from 2.7% in August. This marks the lowest inflation expectation since September 2021.

Consumers also anticipate that inflation will only reach 2.1% in the 12 months ending in September 2027, a decrease from the previous month’s prediction of 2.3%. This figure is the lowest since the onset of the Russia-Ukraine war in February 2022, which caused significant spikes in energy and food prices across the Eurozone.

The decline in inflation expectations could bolster the confidence of ECB policymakers in achieving their 2% target by 2025. While inflation in the Eurozone fell to 1.7% in September, there are predictions that it will rebound in the remaining months of the year before declining again next year.

The ECB pays close attention to inflation expectations because they can influence wage demands during labor negotiations, ultimately impacting future price increases. Despite the drop in this year’s key inflation rate, ECB officials remain concerned that rapid wage growth might trigger price hikes in labor-intensive service sectors, pushing inflation above the 2% target.

During a speech on the 24th, ECB Chief Economist Philip Lane noted that recent surveys indicate a slowdown in wage growth for the coming year. He remarked, “As inflation normalizes, the motivation for wage negotiations to keep pace with inflation is gradually diminishing.”

Meanwhile, the Reserve Bank of Australia (RBA) reported its fourth consecutive year of accounting losses, posting a loss of AUS $4.2 billion (US $2.78 billion) for the fiscal year ending June 30. This was primarily due to the interest earnings from bonds and other assets in its portfolio being well below the interest paid to commercial bank depositors, with most of these assets acquired during the pandemic when interest rates were at their lowest.

Although these losses do not affect monetary policy, the RBA has experienced significant capital erosion since 2021, leaving its net asset position at minus AUS $20.4 billion as of June 30. RBA Governor Philip Lowe stated, “Negative net assets do not impact our operations or our ability to implement policy, but the board believes it’s important for the central bank’s capital to recover over time.”