Inflation in Eurozone seen to fall more than Forecast

Economic analysts are expecting eurozone inflation to reach even lower levels this year than previously forecast, before gradually picking up in coming years in response to ECB policy measures and exchange rate moves, a report published Thursday showed.

The European Central Bank’s Survey of Professional of Forecasters, a quarterly poll of analysts not representing the views of ECB staff, said that inflation in the 19-country currency bloc would only be 0.1% this year, a reduction of 0.2 percentage point compared with the forecast made in January.

Inflation, however, is due to pick up more speed in future years, the forecasters said. They now see inflation next year at 1.2%, compared with the 1.1% expected in January, while for 2017 they forecast an inflation rate of 1.6%, compared with a previous projection of 1.5%.

“Respondents reported that the downward revision for 2015 mainly reflected lower oil prices, whereas monetary policy measures and exchange rate developments have resulted in upward revisions for 2016 and 2017,” said the ECB.

Over a longer-term horizon, inflation is seen at 1.8%, matching January’s estimate. However, when taken out to a second decimal point, the longer-term expectation is slightly higher now than previously, coming in at 1.84% versus 1.77% seen in January.

The rise in inflation expectations will come as encouraging news for the central bank, suggesting that its commitment to pump over EUR1 trillion ($1.1 trillion) into the eurozone economy until next September is convincing firms and households that prices will start to rise soon.

The most recent data showed inflation at minus 0.1% in annual terms in March, its fourth straight month in negative territory. The ECB targets inflation at just below 2% over the medium term.

Source: MarketWatch