A recent survey from the European Central Bank (ECB) has sent a ripple of concern through the markets.
The ECB's March Consumer Expectations Survey, released on April 28, 2026, showed that households now expect inflation to be much higher than previously thought. One-year inflation expectations jumped to 4.0% and three-year expectations rose to 3.0%, both significantly above the ECB's 2% target. This sharp increase has ignited fears of de-anchoring, a situation where the public loses faith that the central bank can control inflation, making it harder to bring prices back down.
So, what's behind this sudden shift in sentiment? The primary driver appears to be a major energy supply shock. Ongoing conflict between the U.S. and Iran has severely restricted shipping through the Strait of Hormuz, a critical channel for global oil and gas. This disruption has kept Brent crude oil prices hovering around $100 per barrel, directly impacting consumers through higher fuel and heating costs. These visible price hikes at the pump and on utility bills have likely reset what people believe will happen with prices in the future.
Interestingly, we can be fairly confident that this is an energy story, not a wage-driven one. First, recent data from the ECB's own Wage Tracker shows that negotiated wage growth is actually slowing down. If a wage-price spiral were the cause, we would expect to see wages accelerating, which is not the case. This helps isolate the energy shock as the main culprit. Second, the survey also revealed that consumers are more pessimistic about economic growth and unemployment, which aligns with the uncertainty and higher costs caused by an energy crisis, not an overheating, wage-driven economy.
This puts the ECB in a very difficult position. The central bank's officials had already signaled their concern about inflation expectations becoming unmoored. This data makes their upcoming policy meeting on April 30 far more critical. The market consensus is now leaning towards a more hawkish response, meaning the ECB may need to signal a greater willingness to raise interest rates to prove its commitment to the 2% inflation target and keep expectations in check.
- De-anchoring: A situation where long-term inflation expectations shift away from a central bank's target, making it more difficult to control inflation.
- Hawkish: A term describing a monetary policy stance that favors higher interest rates to combat inflation.
- Wage-price spiral: A cycle where rising wages cause businesses to raise prices, which in turn leads workers to demand even higher wages.