ECB survey sees higher inflation in coming quarters

ECB Survey Predicts Elevated Euro Zone Inflation Until 2028 Amid Cost Pressures

Euro Zone Inflation Outlook and Key Drivers

Survey Findings and Updated Inflation Projections

FRANKFURT, Oct 30 (Reuters) - Euro zone inflation is expected to be sharply higher this year and next than earlier predicted, and may only return to the European Central Bank's 2% target in 2028, the bank's Survey of Professional Forecasters showed on Friday.

Inflation has surged to nearly twice the ECB's goal last month and could rise even further on sharply higher energy costs, likely forcing the ECB to raise interest rates again in December after policymakers opted for a hold on Thursday.

The ECB's quarterly survey now sees inflation averaging 3.0% this year, above the 2.7% predicted earlier while next year's projection was lifted to 2.6% from 2.2%. 

Underlying and Core Inflation Trends

Changes in underlying inflation forecasts were more benign, however, suggesting that the bulk of the increase was due to energy costs, which are now somewhere between the ECB's adverse and severe scenarios. 

Core inflation, which filters out food and energy costs, was seen averaging 2.4% this year and 2.5% next, but will remain above 2% even in 2028, the survey said.

Wage Growth and Policy Implications

High inflation is still not expected to kick off a wage-price spiral, the forecasters said, and wage growth is seen slowing from this year's 3.3% to 3.1% next year and 2.8% in 2028.

This should offer policymakers some comfort as they fear that high inflation will generate second round effects, which can prove stubborn and force the bank to hike rates.

The ECB has long said that wage growth of around 3% was consistent with its own inflation goal, given usual productivity gains.

(Reporting by Balazs Koranyi)