Euro zone inflation will be higher in the coming years than earlier predicted and will come in just below the European Central Bank’s 2% target in 2022, a survey by the ECB showed on Friday.
Consumer price growth is now seen averaging 2.3% this year and 1.9% the next, the Survey of Professional Forecasters, a key input in ECB deliberations, showed. This compared to 1.9% and 1.5% respectively in the last edition of the SPF three months ago.
“Respondents attributed the upward revisions mainly to higher energy prices and the impact of supply chain tensions,” the ECB said.
“Although both these factors were also cited in the previous round, the recent developments were seen to have been more intense and were expected to be more persistent than previously anticipated.”
Already close to twice the ECB’s target, inflation is set to accelerate further and possibly hit 4% in the coming months, on soaring commodity prices and industrial supply bottlenecks, keeping pressure on both producer and consumer prices.
It will then decline but many policymakers see it remaining above the ECB’s 2% target in 2022, making ultra easy monetary policy more difficult to justify.
Abandoning her long standing stance that inflation is “largely temporary,” ECB President Christine Lagarde admitted on Thursday that consumer price growth will be high for longer, putting possible upward pressure on wages.
But she maintained that no policy response was needed as inflation would still sink back below the ECB’s target once the stress in the global economy, mostly a result of its reopening after the pandemic, is resolved.
In the longer term, defined as 2026, inflation was seen at 1.9%, above the previous projection of 1.8%.
Projections for growth were raised to 5.1% this year from 4.7% seen previously, while 2022 growth is now expected at 4.5%, broadly in line with the previous, 4.6% figure.