World Economy

ECB Forecasts Slump in Eurozone Inflation

ECB Forecasts Slump in Eurozone InflationECB Forecasts Slump in Eurozone Inflation

Inflation in the eurozone will slump in early 2018, the European Central Bank forecast Monday, but would return to an upward path towards its target later in the year.

Price growth could fall as low as 0.9% in the first quarter, the ECB said in its regular economic bulletin, far short of governors’ target of just below 2%, AFP reported.

Prices in the 19-nation single currency area rose rapidly in early 2017, driven by sharp changes in the cost of food and oil, it said. That means inflation in early 2018 will be much lower, as forecasts suggest prices will have grown more slowly in a year-on-year comparison with the first quarter of this year.

The ECB analysts said that inflation should be back on course towards its target by the second half of 2018, barring unexpected price developments.

In quarterly forecasts released earlier in September, the central bank said it expected inflation to average 1.5% in 2017 and 1.2% in 2018—a slight downgrade for next year compared with earlier predictions.

Observers are keenly awaiting bank governors’ announcement that they will wind down mass bond-buying. Such “quantitative easing” is designed to infuse cash into the economy and drive inflation in the eurozone towards the 2% target, believed to be most favorable to growth.

ECB President Mario Draghi has said policymakers will likely make a move in October. The ECB will announce in October a six-month extension to its asset purchase program but will cut how much it buys each month to €40 billion ($47.8 billion) from January.

But interest rates, the central bank’s other lever for managing inflation, are expected to remain low long after its €60 billion per month purchases of government and corporate debt have ended.


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