ECB Survey Shows Across-the-Board Cut in Inflation, GDP Outlook
Expectations for inflation and economic growth were cut across the board in the latest European Central Bank survey of professional forecasters in a morose assessment of the euro-area economy just days before President Mario Draghi ends his eight-year term.
Projections for annual inflation were reduced by 0.2 percentage point for 2020 and by 0.1 percentage point for both 2019 and 2021, according to the poll, held at the start of this month. Growth forecasts were also lowered -- especially for the next year.
In a particularly worrying development, forecasters cut their outlook for longer-term core inflation, which excludes volatile energy and food prices, to 1.6% from 1.7%, a warning sign that ECB watchers may be losing faith in the central bank’s ability to maintain price stability. Projection for longer-term headline inflation was unchanged at 1.7%.
Draghi said on Thursday that “weaker growth momentum” is delaying the pass-through of higher wages to inflation, offering a gloomy assessment of the euro-area economy in his last press conference as ECB president. His farewell follows last month’s decision to restart quantitative easing and cut interest rates, and a pledge that stimulus will stay in place until inflation is firmly back to the target of just under 2%.
The stubborn undershooting of the goal has prompted calls for the ECB to start a review of its strategy that is likely to take place under new President Christine Lagarde, who will start in Frankfurt next month. The Governing Council has already pledged that it intends to treat its target symmetrically, meaning policy makers are now likely to tolerate higher inflation after an earlier period of lackluster price growth.
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