Of falling inflation in the eurozone? Inflation expectations among euro zone consumers fell in January, but expectations of wage growth continued to rise, heightening fears that a pay hike will slow price controls, a European Central Bank survey showed Tuesday.

The expected inflation rate for the next 12 months fell to 4.9% from 5.0% a month earlier, and for the next three years to 2.5% from 3.0%, according to the median ECB data, based on a survey of about 14,000 adults in the six largest eurozone countries. The situation may also affect the EURODOLLAR FUTURES. 

Households on average expect nominal income growth of 1.3% over 12 months, a modest value given the rapid rate of inflation, but above the December survey’s 1% level.

Officials at the European regulator forecast the fastest wage growth in years, 5%, in 2023. Such a figure could be a headache when setting interest rates.

While wages are still just recovering from the severe drop in real incomes, a 5% growth rate still prevents inflation from falling to 2%, so the catch-up process itself is expected to drag down inflation and make it harder for the ECB to meet its target.

Markets now expect rates to be raised by more than 100 basis points in additional meetings, with the deposit rate peaking at or just above 4%.

Earlier, we reported that S&P 500 and Nasdaq futures are a slight plus ahead of Powell’s speech.