The EU flag flies in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany, on July 18th. [Photo/Agencies]
Economists expect inflation to exceed the European Central Bank's 2% target in the near future, based on research published Wednesday by Germany's Ifo Institute for Economic Research.
Economists expect eurozone inflation to reach 2.6% this year, according to a quarterly analysis conducted by Ifo in collaboration with the Swiss Institute for Economic Policy Research.
“Inflation is expected to exceed the European Central Bank's 2% target in the medium term,” Ifo researcher Niklas Potrafke said in a statement.
“These stagnant inflation expectations may discourage central banks from cutting rates further.”
Last month, inflation in the 20 countries using the euro currency fell to 1.8% from 2.2% in August, falling below the ECB's 2% target for the first time since 2021.
Inflationary pressures have eased in various sectors, including energy, which had experienced significant deflation of -6%.
However, the ECB's forecasts released last month showed a significant economic slowdown in the euro zone, with growth expected to be just 0.2% in the third quarter.
Germany, the region's largest economy, faces special challenges, with official GDP growth forecasts predicting the economy will contract by 0.2% this year, potentially marking its second straight recession. .
Inflation in euro zone countries this year is expected to reach 2.4% in Germany, 3.1% in Austria and 2.3% in France, according to the Ifo.
Nevertheless, there is growing recognition that consumer prices are being effectively managed.
The ECB is expected to cut rates further on Thursday, according to Reuters, with Governor Christine Lagarde suggesting growing confidence that inflation will fall will be factored into the bank's decision.
In September last year, the ECB raised interest rates to 4%, the highest level since the euro was created, with the aim of curbing persistent inflation across the eurozone. Since reaching this peak, the ECB has cut rates twice this year, once in June and again at its most recent meeting last month.
“Victory against inflation is in sight,” Banque de France Governor François Villeroy de Galhau, a member of the ECB's rate-setting board, said last week.
“Reductions are very likely,” he told France Info Radio, adding: “This will not be the last.”
