On the anchoring of inflation expectations in the euro area

This paper assesses the anchoring of long-term inflation expectations in the euro area, a key issue from a monetary policy perspective, using a range of measures of inflation expectations and methods. The overall reading of the evidence is that long-term inflation expectations in the euro area have rapidly returned to levels close to the new 2 per cent symmetric inflation target of the ECB announced in July 2021, in a context of elevated inflationary pressures linked to the recent surge in energy prices and persistent supply-side bottlenecks. Nonetheless, the risk of an upward de-anchoring of long-term inflation expectations deserves close and continuous monitoring. This risk has to be taken into account when assessing the appropriate pace of normalization of the ECB’s monetary policy stance, acknowledging that the inflation outlook is surrounded by high uncertainty, as signalled by all types of expectations.