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Inflation expectations management
2026-06-05
Not so long ago, Eurozone inflation was almost too dull to mention. Nowadays, the opposite risk looms: rising factory-price expectations deserve attention – but not panic.
“The truth is rarely pure and never simple,” and not just in Oscar Wilde’s “The Importance of Being Earnest.” For years, Eurozone inflation was almost too dull to mention. Consumers, businesses and markets had learned to trust in low and stable prices. Since 2022, the opposite reflex has taken hold: every concerning development risks looking like the start of another round of nasty surprises.
Our Chart of the Week compares inflation in non-energy consumer goods with manufacturers’ output price expectations, shifted 12 months forward. This sidesteps the direct effect of energy prices on overall inflation, but hardly makes the chart a crystal ball. Business expectations about future pricing power could shift swiftly, for example if supply strains grow and household finances deteriorate. This is exactly what makes manufacturers’ output price expectations provide potentially useful early signals. As the chart shows, factory prices often tend to move before consumer prices because producers first face higher costs, then decide whether they can pass them on. Only later do retailers test how much households will bear.
The two lines have not always moved together. In 2021-22, energy prices surged, supply chains clogged up and fiscal support cushioned consumers in much of the developed world. Manufacturers lifted prices first; consumer-goods inflation followed with a lag. In 2023-24, the process reversed. Pipeline pressure eased, but earlier increases were still filtering through to shops, helping to keep wage demands alive.
The greater risk now is not so much a rerun of 2022 as the grip of recent memory. There is, so far, little evidence of another wage-price spiral of the kind seen then. Manufacturers’ price expectations have risen sharply, but inflation in consumer goods remains relatively subdued. “Unless supply-chain disruptions intensify, relatively weak demand should dampen the pass-through of higher costs into consumer prices,” says Ulrike Kastens, Senior Economist at DWS.
For investors, however, 2022 still casts a long shadow. Central banks were slow to react then. This time, we think they will be wary of committing too early. Weaker growth points to lower yields; renewed pressure on goods prices limits the scope for relief. François Villeroy de Galhau, the departing governor of the Banque de France, recently argued that central banks must keep inflation expectations anchored while responding to the evidence as it comes in.[1] Until then, every data point is likely to be picked apart by markets. Wilde would not have been surprised. He subtitled his play “A Trivial Comedy for Serious People.”
Sources: Harver Analytics, European Office of Statistical Communities, S&P Global, as of 06/03/26
* HICP: Harmonised Index of Consumer Prices, excludes energy goods
** PMI: Purchasing Managers’ Index, shifted 12 months forward
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