Euro-Zone Inflation Jump Seen as Temporary, ECB Survey Shows

Article content

(Bloomberg) — Euro-zone inflation will jump to 2.7% on average this year but return close to the European Central Bank’s 2% target already next year, according to the institution’s quarterly survey of professional forecasters.

Article content

Respondents revised up their expectations for 2026 significantly — from 1.8% in the previous round — while they see price gains of 2.1% and 2% in 2027 and 2028. At the same time, they forecast slightly slower economic growth than before.

Article content

Article content

A separate ECB poll – the corporate telephone survey – concluded that the broader pass-through from higher energy costs due to the Iran war “might be more gradual than in the past” but also warned that things could get worse if the fighting isn’t over soon. 

Article content

Article content

The data come after the ECB last Thursday kept interest rates unchanged while signaling that an interest-rate increase will be considered at the next meeting. Bundesbank President Joachim Nagel said Friday that such a move will be needed if there’s no significant improvement in the outlook for inflation and growth.

Article content

Article content

While some of his colleagues echoed such comments, others struck a more cautious tone, with Greece’s Yannis Stournaras saying that a risk of a recession is “real” and Finland’s Olli Rehn arguing that there are ”no obvious signs“ yet of war-induced higher inflation becoming entrenched in the economy through higher wages and prices.

Article content

The ECB’s analysis is now focused on the risk of so-called indirect and second-round effects — such as a buildup of pressure on salaries and a rise in inflation expectations among consumers and companies.

Article content

The corporate telephone survey said March’s advance in oil prices was being transmitted rapidly to selling prices for most oil-dependent goods and services, but it also highlighted that at least large firms tended to be better hedged against fluctuations in energy prices than in 2022, limiting the impact.

Article content

Article content

If the Middle East war isn’t concluded soon, however, “it was likely to induce supply chain disruption, putting significant further upward pressure on prices and curtailing demand,” it said. Particular concerns surrounded potential shortages of hydrogen and helium.

Article content

“Supply disruption of this nature could generate inflationary pressure more akin to that witnessed during the COVID-19 pandemic,” the survey said, while stressing that there were several mitigating factors such as weaker global demand.

Article content

According to the ECB “for most contacts, the principal concern was the impact that the war would have on consumer confidence and therefore final consumer demand.”

Article content

On wage growth, the survey showed companies still anticipated a moderation, to 2.9% and 2.8% this year and next from 3.5% in 2025. However, a few contacts made small upward revisions to their expectations for 2027 in view of the war, while a larger number saw the latter as an upside risk, the ECB said.

Article content