According to financial market experts, inflation in the eurozone is likely to be years above the European Central Bank’s target. However, experts’ inflation expectations are falling noticeably for the first time in a long time, according to a study by the Mannheim-based economic research institute ZEW.
With their estimates, they are slightly more pessimistic than the ECB, which assumes an average inflation of 5.4 percent this year.
According to the study, financial market experts expect average inflation rates of 5.5 percent, 3.3 percent and 2.5 percent for the years 2023, 2024 and 2025. In May, the experts expected higher rates of 5.8 percent and 3.7 percent. Percent went out and beyond this year. According to Statistics Austria, inflation in Austria was 7 percent in July.
Frank Brückbauer, scientist at ZEW’s Research Department for Old Age Provision and Sustainable Financial Markets, spoke of a trend break. “After no further rise in inflation expectations from financial market experts was first registered in May 2023, they are now falling noticeably for the first time in August 2023.” However, inflation expectations remained at a high level, he said. Eurozone inflation is likely to remain well above the ECB’s target of 2% until at least 2025.
Energy and food as drivers
Brückbauer said rising wages in the eurozone remained a major driver of inflation. On the other hand, the weak economy has a dampening effect.
Inflation in the eurozone had skyrocketed, mainly due to higher energy and food prices in the aftermath of the war in Ukraine. After years of zero and negative interest rates, the ECB has so far responded with an unprecedented series of nine rate hikes.
The main interest rate at which commercial banks can get fresh money from the central bank is 4.25 percent. Higher interest rates make borrowing more expensive, which can dampen demand and curb high inflation rates. Inflation in the eurozone is falling: in June it was 5.5 percent against 6.1 percent in May. However, the rate is still more than twice the ECB’s medium-term inflation target of 2 percent, which it sees as price stability.
ECB President Christine Lagarde is determined in the fight against inflation. However, with a view to the next ECB Council meeting in September, she did not rule out an interest rate pause for the first time.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
