Euro zone inflation could hold above target -ECB survey

FRANKFURT (Reuters) – Euro zone inflation could be lower in the coming years than previously expected but may stay above the European Central Bank’s 2% target further out, the bank’s Survey of Professional Forecasters showed on Friday.

The ECB has raised rates at each of its past seven meetings and promised even more tightening to combat runaway price growth with policymakers increasingly concerned that rising underlying price pressures could keep inflation sticky for years to come.

The ECB’s quarterly Survey of Professional Forecasters, a key input in policy deliberations, now sees 2023 inflation at 5.6%, down from 5.9% expected three months ago, while the 2024 projection was cut to 2.6% from 2.7%.

But the 2025 figure, the last year in the ECB’s own projections, was lifted to 2.2% from 2.1% and the “longer term” figure, which refers to 2027, was kept at 2.1%.

Expectations for underlying inflation were only lifted for 2023, however, and all future projections remained unchanged, including the 2% reading in the “longer term”.

Speaking after the ECB raised rates by 25 basis points to 3.25% on Thursday, ECB President Christie Lagarde said that even if most measures of longer-term inflation expectations stand around 2%, some indicators have edged up and warrant continued monitoring.

The survey’s 2023 growth projection was lifted to 0.6% but that remains far below the ECB’s own 1% expectation, while the 2024 projection was actually cut to 1.2% from 1.4%, suggesting lukewarm growth for years to come.

The survey also sees a faster decline in unemployment than the previous survey with the rate falling to 6.8% this year versus 7% seen previously.

At 6.5%, unemployment is already far below this reading, however, and ECB policymakers are concerned that the labour market is getting overheated, prolonging high inflation.

Source: Investing.com