According to financial market experts surveyed by ZEW Mannheim, the inflation rate in the Eurozone is anticipated to continue high but gradually drop over the coming years. The survey results, which were released in May 2023, indicate that it is likely that the European Central Bank’s (ECB) inflation target won’t be met until beyond 2025.
Experts were asked to predict inflation and significant interest rate developments in the Eurozone from 2023 to 2025 in the study, which was conducted in February 2023. According to these experts, the ECB will increase interest rates one more time in 2023 before gradually lowering them in 2024 and 2025.
The median inflation rate was predicted to be 5.8% in 2023 before dropping to 3.5% in 2024 and 2.5% in 2025. This prediction indications that the majority of experts do not believe the ECB will achieve its 2% inflation target in the timeframe allotted. Notably, the median projection for 2023 fell from 6% in February 2023, according to ZEW Mannheim, marking the first decline in inflation expectations for 2023 since the survey’s start.
Seventy percent of respondents said they have increased their inflation projections based on wage increases since February 2023, indicating that wage trends in the Eurozone are a big concern for the majority of respondents. In addition, 14% of respondents claimed their forecasts had been greatly raised.
Nearly half of the experts revised their inflation forecasts upward in response to the economic shift towards a more sustainable model. response. However, with 48% and 39% of respondents, respectively, stating that these factors had a negative impact on their inflation estimates from February 2023, energy prices and the ECB’s monetary policy were widely seen as having a deflationary impact.
“Financial market analysts are not forecasting an increase in inflation rates for the first time since the beginning of 2021. However, given that their expectations are stabilising at a high level, it is likely that until 2025, inflation rates will continue far over the ECB’s target rate of 2%. The same as in February 2023, wage growth in the Eurozone was mentioned as a key inflationary driver. However, some respondents predict inflation rates to rise due to declining energy prices and the ECB’s aggressive interest rate strategy. to be somewhat lower in May 2023 than in February 2023,” said Professor Frank Bruckbauer, advanced researcher in the ZEW Research Unit ‘Pensions and Sustainable Financial Markets.’
