TD Securities analysts highlight that the European Central Bank (ECB) Consumer Expectation Surveys showed a notable upside surprise in 1-year and 3-year inflation expectations. They argue this points to concerns about inflation persistence and is likely to push ECB communication in a more hawkish direction, although a less tight labour market may limit second-round wage effects, keeping data dependence high.

Upside inflation expectations seen as persistent

"The ECB Consumer Expectation Surveys registered a significant upside surprise in both the 1-year and 3-year inflation expectations, at 4.0% (mkt: 2.8%) and 3.0% (mkt: 2.6%), respectively."

"This suggests a concern of inflation persistence beyond the energy shock in the first year, and we expect it to tilt the ECB messaging more hawkish at the April 30th meeting, as a result."

"To caveat, though inflation expectations are crucial to the Governing Council's thought process, the labour market is less tight than it was in 2022, which could limit second-round pass-through to wage growth measures."

"Given the ongoing uncertainty, monitoring all other data points will still be essential to the ECB in the near term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)