The Survey on Access to Finance of Enterprises (SAFE) has been monitoring inflation expectations across the euro area since June 2023, focusing on varying time horizons of one year, three years, and five years.

As of March 2024, the survey has expanded to include firms’ perceived uncertainty regarding their five-year inflation expectations.

Inflation expectations among firms show marked volatility in the short term, particularly across different countries, contrasting with the more stable medium and long-term expectations.

In June 2023, the median inflation expectation for a one-year horizon was approximately 5%, reflecting the heightened levels of inflation at that time.

This expectation gradually decreased to nearly 3% as of March 2024, aligning closely with trends in the Harmonised Index of Consumer Prices (HICP) inflation.

However, significant differences persist among countries in their inflation expectations.

For the three-year and five-year horizons, firms' inflation expectations stabilized at around 3%.

Research indicates that various factors influence inflation expectations, which include firm characteristics, sector-specific influences, and the countries in which firms operate.

The correlation between inflation expectations and actual euro area inflation is most pronounced in the short-term outlook.

A regression analysis conducted for this survey identifies key determinants of firms' inflation expectations, examining factors such as firm age, size, export status, ownership structure, turnover trends, and broader macroeconomic indicators like euro area inflation rates.

The findings highlight that smaller, younger, and non-exporting firms, particularly those operating in the service and construction sectors, anticipate higher inflation rates for all time horizons.

This trend may be attributed to these firms' limited access to information as well as reduced exposure to international market dynamics.

Additionally, German firms notably report higher inflation expectations on average compared to their counterparts in other euro area nations.

Across various countries, firms demonstrate a consistent positive correlation with actual euro area inflation across all time frames, with the strongest relationship evident in the short-term expectations.

The underlying variations in these inflation expectations can largely be traced back to individual firm characteristics, accounting for approximately 62% of the total variation observed.

Country-specific factors contribute around 21%, while expectations regarding future business operations, such as investment and employment decisions, play a smaller role.

Over time, the influence of country fixed effects and business expectations has shown increased relevance, especially for short- and medium-term horizons.

Conversely, factors impacting long-term inflation expectations exhibit greater stability.

In early 2024, over 50% of euro area firms expressed that uncertainty regarding their five-year inflation outlook is tilted toward the upside.

As of the first quarter of 2025, 30% of firms considered their long-term inflation risks to be balanced, while slightly over half perceived these risks as skewed upward, and approximately 14% viewed them as tilted downward.

The degree of uncertainty surrounding long-term inflation expectations is predominantly shaped by the country of operation, with country-specific characteristics accounting for the most significant share of variation in uncertainty, followed by factors related to individual firms.

This underscores the critical impact of a firm's geographical context on shaping inflation expectations.

Understanding the determinants of inflation expectations among firms is vital for evaluating the influence of external changes on their economic outlook.

The interplay of individual firm attributes and broader country-level economic conditions significantly contributes to how firms adjust their inflation expectations in response to evolving business environments.