Irish consumers more pessimistic about inflation than their EU counterparts

The average consumer here expects prices to rise 3% over the next year

For the previous 12 months, Irish consumers feel prices jumped by 5.4%, above the EU average of 4.9%. Picture: Denis Minihane.

Consumers' expectations of future inflation held steady last month, according to the latest survey from the European Central Bank (ECB) as it mulls a second interest rate cut in September.

According to the monthly Consumer Expectations Survey (CES) which samples the views of 19,000 adults across Ireland and 10 other EU countries, consumers expect prices to increase by 2.8% over the next year, a rate unchanged from last month's survey. Average expectations for inflation over the next three years were also unchanged in June, at 2.3%.

However, the survey results show Irish consumers taking a more pessimistic view on prices expecting a 3% increase over the next year, a rate also unchanged from May.

The ECB said the perceived inflation rate amongst the EU population for the previous 12 months fell sharply, down to 4.5% from 4.9% in May. Again, the EU average was below the expectations of Irish consumers with those surveyed here feeling prices jumped 5.4% in the past year. 

The survey also shows Irish adults expect their incomes to rise by 1.8% over the next year, above the EU average of 1.2%.

After cutting rates by 25 basis points in June, the ECB took the decision to leave rates unchanged at its July meeting with inflation remaining a key metric guiding rate decisions. Focus is now switched to the September 12 meeting of the ECB with an expectation of a second cut. 

The US Federal Reserve also meets next week with mixed views on whether it will announce a cut in rates amid ongoing concern over the global economy and whether the post-covid surge in inflation in the wake of the Russian invasion of Ukraine has been brought under control.

A former deputy governor of the Irish central bank said a September interest rate cut by the ECB is "very possible", though its future policy will remain data-dependent,

Stefan Gerlach, deputy governor at the Central Bank of Ireland between 2011 and 2015, said he expected eurozone inflation pressures to abate further which, along with a "natural weakness" in economic activity, will allow the ECB to continue reducing rates.

"The likelihood of a rate cut in September is material," Gerlach, currently chief economist at EFG Bank in Zurich, told the Reuters Global Markets Forum.

Money markets have priced in 64% odds for a 25-basis-point rate cut by the ECB when it meets next. Traders see a less than 10% chance of a third easing by the ECB in 2024. 

The upcoming US elections have the potential to lead to major changes in American economic policies that will unavoidably spill over to other countries, a big concern for the European economy, he said.

Additional reporting Reuters