Euro zone inflation may be lower than originally European Central Bank’s projected in the next years. But it may remain above the European Central Bank’s (ECB) 2% objective in the long run. According to the bank’s Survey of Professional Forecasters released on Friday.
The European Central Bank’s (ECB) has raised interest rates at each of its last seven meetings and has pledged even more tightening to tackle runaway inflation. With policymakers increasingly worried that increasing underlying price pressures may keep inflation sticky for years to come.
The ECB’s quarterly Surveys of Professionals Forecasters, a major input in policy discussions, now forecasts 2023 inflation at 5.6 percent, down from 5.9 percent expected 3 months ago, and 2024 inflation at 2.6%, down from 2.7%.
ECB Interest Rate Forecast
However, the figure for 2025, the last year in the ECB’s projections, was raised to 2.2% from 2.1%. While the “longer term” authority figure, which refers to 2027, was maintained at 2.1%.
However, underlying inflation expectations were only raised for 2023. With all future projections remaining unchanged, including the two percent reading in the “longer term.”
ECB President Christie Lagarde stated after the ECB raised rate by 25 basis points to 3.25 percent on Thursday that while most gauges of longer-term inflation expectation remain around 2%, some signs have nudged up and require ongoing monitoring.
The survey’s 2023 progress forecast was raised to 0.6%. But it remains far behind the ECB’s own 1% forecast. While the 2024 forecast was reduced to 1.2 percent from 1.4 percent, implying moderate progress for years to come.
The survey also predicts a faster drop in jobless than the previous survey, with the rate dropping to 6.8% this year from 7% earlier.
However, at 6.5 percent, unemployment is already well below this level. And ECB policy makers are worried that the labour markets is overheating, prolonging high inflation.