ECB survey sees lower inflation, 2% over the longer term
Inflation has come down quickly over the past years and now hovers around the 2% target, a key reason why the ECB left interest rates unchanged on Thursday and hinted that it was not in any hurry to cut rates any further after halving its main rate to 2% from 4% since June 2024.
Inflation is now seen averaging 2% this year, below the 2.2% predicted three months ago, and will then slow to 1.8% next year, below a previous expectation for 2%, the survey, a key input in policy deliberations, indicated.
"Tariffs were expected to have a small downward impact (on inflation) in the nearer term but to be broadly neutral on balance in 2027 and over the longer-term horizon," the ECB said.
The dip below target is likely to be temporary, however, and price growth will then return to 2% in subsequent years, then stay at the bank's target even in the longer term, defined as 2030, the survey showed.
Steady inflation around 2% and relatively healthy economic growth is why some policymakers are starting to doubt if more rate cuts are needed and financial markets see only a 50% chance of another cut in the current easing cycle.
Economic growth is also likely to be a bit quicker than predicted, accelerating to 1.1% this year, above the 0.9% seen earlier, the survey indicated.
Growth has been expected to take a big hit this year from trade tensions with the United States but the first half of the year was somewhat stronger than previously thought, indicating economic resilience.
Unemployment expectations remained broadly unchanged and the jobless rate is seen at 6.3%, dipping to 6.2% over the longer term.
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