Euro zone consumers cut their inflation expectations in February and also took a more optimistic view on growth and unemployment, a fresh survey by the European Central Bank showed today.
Euro zone inflation has started to edge down from record highs around the turn of the year.
Further big falls are also likely over the coming months, even if concerns are rising that price growth could still get stuck above the ECB's 2% target further out.
Over the next 12 months, inflation expectations fell to 4.6% from 4.9% while three years out, they eased to 2.4% from 2.5%, the ECB said, based on a monthly survey of 14,000 adults in six of the euro zone's biggest countries.
With inflation still far too high, the ECB has raised rates by a combined 350 basis points since last July and the bank's chief economist has already signalled several more increases before rates peak.
Although consumers still expect an economic contraction even if hard indicators suggest the bloc avoided a recession, they have become slightly more upbeat on the outlook.
Growth expectations over the next 12 months rose to -0.9% from -1.2% a month earlier while expectations for the unemployment rate 12 months ahead declined to 11.5% from 11.6%.
On income growth, consumers became more pessimistic, however, and saw their nominal income rising by 1.2% in the year ahead, down from 1.3% in January.
Actual nominal income growth is running in the 5% to 6% range and some policymakers are worried that this is out of sync with a 2% inflation target, even if consumers are still just catching up after two years to ultra-fast inflation.