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ECB survey sees rise in short- and long-term inflation exactions
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FRANKFURT (Reuters) – Euro zone inflation is set to be higher than forecast just a few months ago and even longer-term expectations are moving above the European Central Bank’s 2% target, a fresh ECB survey showed on Friday.
Fearing that runaway inflation could get out of control, the ECB raised rates by a bigger-than-expected 50 basis points on Thursday and promised further hikes in the months ahead, even as growth is set to suffer from sky high energy prices.
Consumer prices are now seen rising by 7.3% this year, above a 6.0% projected three months ago while they are likely to grow by 3.6% next year, more than the 2.4% predicted earlier, the ECB said in its quarterly Survey of Professional Forecasters.
A key input in policy deliberations, the survey also showed longer term expectations at 2.2%, above the 2.1% seen earlier and pointing to a steady rise in expectation, which had been stuck well below the ECB’s target for much of the past decade.
Even underlying inflation expectations moved to 2.2% from 1.9% – one of the biggest jumps in longer-terms expectations in the survey’s history.
Arguing for months that high inflation would prove transitory, the ECB kept policy ultra easy even as most peers were raising rates rapidly. But the bank has now acknowledged the inflation dangers and looks set to keep tightening at each of its upcoming meetings this year.
The biggest hurdle for rates hikes will be the state of the economy, as the fallout from Russia’s war on Ukraine is already weighing on growth and a complete loss of Russian gas in the coming winter would push the bloc into recession.
The ECB survey now sees growth this year at 2.8% this year, just below the 2.9% seen earlier. In 2023, growth is expected at 1.5%, well below the 2.3% projected in April.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to keep the economy running smoothly.
Monetary policy refers to the actions taken by a country's central bank to control the money supply and interest rates to achieve macroeconomic goals such as controlling inflation, consumption, growth, and liquidity.
The European Central Bank (ECB) is the central bank for the euro and is responsible for monetary policy within the Eurozone, aiming to maintain price stability and oversee the banking system.
Inflation expectations are the rate at which people expect prices to rise in the future. These expectations can influence economic behavior, such as spending and saving.
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