Euro zone inflation set to remain below target - ECB survey

Thursday 13 February 2014 10.28
The ECB defines price stability as inflation rates close to but just below 2%
The ECB defines price stability as inflation rates close to but just below 2%

Euro zone inflation will remain below target in the next few years, and growth will speed up, a survey by the European Central Bank has forecast.  

In its regular quarterly survey of professional forecasters, the ECB found that inflation in the 17 countries that share the euro was expected to reach an annual average 1.1% this year.

Inflation would then pick up to 1.4% in 2015 and 1.7% in 2016, the ECB said.

The new forecasts mark a noticeable downward revision from previous predictions.

At the time of its last SPF survey in November, forecasters had been pencilling in inflation of 1.5% for this year and 1.6% next year. 

The ECB defines price stability as inflation rates close to but just below 2%.

The respondents in the survey attributed the subdued inflation outlook to "surprises in recent data."

"More generally, respondents cited lower commodity prices, the appreciation of the euro and weakness in the economic situation and labour markets as factors behind their revisions," the ECB explained.

Over the longer term, the rate of inflation could reach 1.9%, the survey found.

Last week, the ECB held its key "refi" refinancing rate steady at its current all-time low of 0.25% in face of extremely low inflation in the euro area. 

ECB chief Mario Draghi has insisted, however, that there is no threat of deflation - a vicious circle of falling prices - in the region.

Turning to the growth outlook, the SPF survey predicted that area-wide gross domestic product would return to growth of 1% in 2014 and 1.5% in 2015 after contracting last year.

Momentum would pick up to growth of 1.7% in 2016 and 1.8% in the longer term, the ECB survey found.

That confirms previous forecasts and "implies an expectation of a continuous but gradual strengthening in economic activity over the years ahead," the ECB said.

"The qualitative comments provided by the respondents indicate that an ongoing, but measured, pick-up in domestic demand is expected," it added.