ECB Says Forecasters Cut Inflation Projections

The European Central Bank said professional forecasters cut their estimates for inflation in the euro area, reinforcing concerns over the risk of disinflation in the single currency bloc.

Forecasters estimate euro-area inflation will average 1.4 percent this year and 1.6 percent in 2015, down from 1.5 and 1.8 percent three months ago, the Frankfurt-based ECB said today in its monthly bulletin, citing its quarterly survey. The 2014 estimate was left unchanged at 1.5 percent.

The ECB Governing Council, which will publish its own new projections in December, cut its benchmark interest rate to a record low of 0.25 percent on Nov. 7, citing concerns over the slowdown of price growth in the euro zone. Inflation was at 0.7 percent in October, well below the ECB’s target of close to 2 percent.

The downward revision in the survey is mainly due to the “modest economic recovery” and “ample excess capacity” in the currency bloc, as well as “low wage increases owing to high unemployment levels,” the ECB said. Echoing ECB President Mario Draghi’s policy statement at the Nov. 7 meeting, the central bank said in the bulletin that it expects inflation rates to remain “at present or lower levels” because of the “overall subdued outlook for inflation extending into the medium term.”

Forecasters polled by the ECB also improved their estimate for euro-area growth, saying gross domestic product would contract 0.4 percent in 2013 and increase 1 percent next year. That compares to previous forecasts of a 0.6 percent contraction and a 0.9 percent increase and brings projections in line with those of the ECB’s September outlook. For 2015, the forecasters see GDP growing 1.5 percent, according to the poll.

Unemployment in the euro-area will remain at 12.1 percent this year and in 2014, the survey showed, before falling to 11.6 percent in 2015.

To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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