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ECB raises inflation, cuts growth forecasts

ECB raises inflation, cuts growth forecasts
© Reuters. FILE PHOTO: A man walks past a fruit and vegetable shop at Brixton Market, amid the spread of the coronavirus disease (COVID-19), in London, Britain, September 27, 2020. REUTERS/Simon Dawson

FRANKFURT (Reuters) – The European Central Bank raised its inflation projections once again on Thursday but cut its growth outlook as the conflict in Ukraine continues to weigh on confidence, consumption and investment.

The ECB now sees inflation over its 2% target throughout its projection horizon, accepting that rapid price growth is not nearly as temporary as it had forecast for the past year.

The ECB failed to predict the recent inflation surge and its projections have been raised sharply quarter after quarter, leading to criticism of the bank’s forecasting methods and a large internal study on how they got the outlook so wrong.

Inflation is seen averaging 6.8% this year, well above the 5.1% predicted in March, while it is seen at 3.5% in 2023 and 2.1% in 2024.

Inflation rose over 8% last month and could peak in the third quarter before a slow retreat.

Sky-high energy prices are the key reason for the inflation surge but food prices are also rising quickly and underlying price growth, which filters out volatile food and fuel prices, is also well above 2% now.

Expensive food and energy will be a drag on growth, holding back an economy which had just recovered from a deep, pandemic-induced recession.

The following are the ECB’s quarterly growth and inflation projections through 2024. Figures in brackets are previous forecasts from March.

The ECB targets inflation at 2%.

2022 2023 2024

GDP growth 2.8% (3.7%) 2.1% (2.8%) 2.1% (1.6%)

Inflation 6.8% (5.1%) 3.5% (2.1%) 2.1% (1.9%)

Source: Investing.com

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