The Eurozone’s inflation rate will likely remain above the European Central Bank’s (ECB) target for years to come, according to German financial market analysts.
However, the inflation expectations of the experts are falling significantly for the first time in a long time, according to a survey by the ZEW economic research institute, cited by the DPA agency.
“After the inflation expectations of financial market experts failed to rise for the first time in May 2023, they now drop noticeably for the first time in August 2023,” explained ZEW researcher Frank Brückbauer.
However, inflation expectations remain elevated, Brückbauer said.
Eurozone inflation rates are likely to remain well above the ECB’s 2% target until at least 2025.
According to the survey, the 25 German financial market experts expect inflation rates of 5.5%, 3.3% and 2.5% on average for 2023, 2024 and 2025, respectively.
In May, the experts still expected higher rates, of 5.8 and 3.7%, for this year and next; when the ECB expects an inflation rate of 5.4% on average this year in the Eurozone.
According to Brückbauer, rising wages in the Eurozone remain a major driver of inflation; but the weak economy has had a moderating effect.
Inflation in the Eurozone had skyrocketed, mainly due to rising energy and food prices in the aftermath of the war in Ukraine.
After years of zero and negative interest rates, the ECB has responded with an unprecedented series of nine hikes to date.
The basic interest rate at which commercial banks can obtain fresh money from the central bank is 4.25%.
Higher interest rates make borrowing more expensive, which can slow demand and curb high inflation rates.
It is true that inflation in the Eurozone is falling: in June it was 5.5% annually, after 6.1% in May.
However, this rate is still more than double the ECB’s medium-term inflation target of 2%, at which it considers price stability to be maintained.
The president of the ECB, Christine Lagarde, is determined in the fight against inflation; But, ahead of the next ECB Governing Council meeting in September, she did not rule out a pause in interest rate hikes for the first time.
Source: Ambito
