Brazil on the rise: what to know in 2026

The chart shows that expected inflation over the next 12 months moves in the same direction as actual inflation, but with smaller swings. This is what we would expect if the public believed that variations in inflation are likely to be temporary. If inflation is high now, it is likely to fall over the next year, implying that expected inflation will be below current actual inflation.

The chart shows that in 2022 and the first half of 2023, expected inflation lay below actual inflation as the public anticipated, correctly, that inflation would fall. From October 2023, however, it lay above actual inflation as the public remained uncertain that low inflation would persist.

Longer-term expectations for three and five years ahead were generally below short-term expectations throughout this period, and the overall picture was one of inflation expected to decline gradually from its 2022 peak.

With that as background, we turn to the ECB's Governing Council, which will focus on the current situation.

The shock to expectations: January to April 2026

Chart 2 shows expectations at all three horizons in January, March and April of this year. In January, with actual inflation at 1.7%, expectations were around 2.5%, suggesting the public viewed inflation as temporarily low. Notably, this implies the public saw the 2% target as something of a floor as much as a ceiling — itself a telling sign of how ECB credibility is perceived.

By March, following the outbreak of conflict in the Middle East at the end of February, the picture had changed markedly. Actual inflation had risen to 2.6%, but expectations for the next 12 months had jumped to 4%, while three-year expectations stood at 3% and five-year expectations at 2.4%.

By April, with actual inflation having risen further to 3%, short-term expectations held steady at 4%. Longer-term expectations edged down marginally — to 2.9% three years ahead — while the five-year figure was unchanged at 2.4%.

Short-term alarm, longer-term resilience

What do these numbers tell us? The sharp rise in short-term expectations reflects consumers experiencing higher energy prices and expecting them to persist for some time. More important for the ECB are the medium and longer-term figures. These have risen, but remain considerably closer to the 2% target, suggesting that the public broadly expects the current shock to be temporary rather than permanent.

That is reassuring, but it is not grounds for complacency. One might argue that since inflation expectations appear firmly anchored, there is no need for the ECB to do anything. But that would be entirely wrong: anchored expectations are a sign of credibility, not a reason for passivity. The public may expect inflation to remain low precisely because it trusts the ECB to act decisively to ensure it does. This helps explain why a rate hike in June is now widely expected even though underlying inflation pressures remain, for the moment, relatively contained.