Overview
- The European Central Bank’s Consumer Expectations Survey published Friday showed one-year-ahead euro zone inflation expectations fell to 3.5% in May from 4.0% in April, while three- and five-year expectations stayed near 2.9% and 2.4%.
- The Bank of England held its Bank Rate at 3.75% in June and cited easing household inflation expectations and falling energy prices as reasons for pausing further hikes.
- U.S. consumer sentiment improved in June with the University of Michigan’s final index at 49.5 and year-ahead inflation expectations easing to about 4.6% while long-run expectations fell to roughly 3.3%.
- Markets still price one to two more ECB rate increases into the autumn, reflecting the risk that a renewed spike in oil or utility prices from the Iran conflict could quickly reverse recent gains.
- ECB forecasts assume energy prices moderate and foresee inflation peaking in late 2026 then declining toward about 2.3% by mid-2027, but lower-income households remain most exposed to price swings and could see the biggest near-term relief or harm.