Unsurprisingly, inflation expectations are rising again

Inflation slowed on both sides of the Atlantic in March, mainly due to the fall in energy prices. This was helped by the fall in gas and oil prices in the first quarter of 2025. In the United States, however, the situation remains worrying, with household inflation expectations at their highest level for over 30 years (University of Michigan survey); they are also rising in the United Kingdom against a backdrop of still robust wage growth. The situation is much more comfortable in the Eurozone, where inflation expectations remain moderate and wages are decelerating, reinforcing the 2% target. In Japan, the situation remains under control.

In the United States, one-year household inflation expectations reached 6.7% y/y in April (highest level since 1981), while long-term expectations are close to 4.5% (highest figure since 1991) Price pressures (on the supply side) remain high, reaching their highest level since October 2023. For the time being, however, the financial markets are not showing the same concerns as households, with the break-even inflation rate slowing since January. CPI inflation slowed to 2.4% in March (from 2.8% in February), mainly as a result of energy deflation and lower rents and car insurance prices. By contrast, the consumption deflator remained stable at 2.5% in February. Producer prices also slowed (+2.8% in March; -0.4 points over one month).

In the Eurozone, inflation also fell in the first quarter, from 2.5% in January to 2.2% in March. France recorded the lowest inflation (0.9%), followed by Luxembourg (1.5%), while Croatia and Estonia saw the highest rise in prices (4.5%). Growth in negotiated wages in the Eurozone slowed in December 2024 (+4.1% y/y; -0.5pp) and the ECB's wage tracker confirms the expected deceleration in 2025 (current forecast at +1.6% y/y in Q4 2025). The producer price index, on the other hand, rose sharply in February (+3.0% y/y). It has now exceeded inflation for the first time since the end of 2022.

Although inflation is falling in the UK (2.6% in March compared with 3.0% in January), the outlook is less favourable than in the Eurozone. Core inflation is decelerating (3.4% compared with 3.7% in January) but remains above the headline measure. Despite the continuing sharp deterioration in the labour market, wage growth is not moderating, thereby limiting disinflation. This is also reflected in household inflation expectations, which have been rising since Q4 2024. Moreover, long-term expectations are above the levels recorded during the inflation crisis.

After rising at the end of 2024, inflation in Japan slowed in the first quarter (from 4.0% in January to 3.6% in March), due to the lower contributions of volatile components (energy, perishable food). The outlook for the coming months points to a stabilisation of inflation: the price pressure indicator (supply side) remains stable, household inflation expectations for the next 1 year are rising only very slightly, average monthly earnings excluding bonuses have moderated markedly, and the producer price index has stabilised at around 4% since the start of the year.

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