The European Central Bank anticipates that inflation in the euro area’s 20 member countries will remain above 3% in the coming year. This forecast further supports the argument for the tenth consecutive interest rate increase scheduled for Thursday.
On Wednesday, the European Central Bank will begin its two-day meeting. There are currently conflicting opinions over the best way to go in light of the persistently rising inflation and mounting concerns regarding the possibility of a recession. Because of this tension, market participants' expectations continue to waver between a stop in rate hikes and a subsequent increase of 25 basis points.
Inflation will be above 3% in 2024, as confirmed by the ECB's projections for the following quarter, which will be presented to the Governing Council on Wednesday. This does not meet the expectations that there will be a minor decrease.
The updated 2024 projection significantly exceeds the prior June forecast of 3%, as well as surpasses the ECB's target of 2%. Additionally, this figure is also above 2.7% anticipated by economists surveyed by Reuters.
The rate decision is still being discussed, according to those in the know, and no formal proposals for the meeting have been presented.
However, inflation predictions for 2024 are becoming a stronger case for rate hikes as they confirm the fears that lowering the CPI could prove to be a greater challenge than was previously believed.
Both headline and core inflation persistently surpass the 5% mark, increasing the risk of demands for higher wages. In today's highly competitive job market, this is particularly relevant.
The ECB's inflation projections for 2025, while subject to minor adjustments, do not cause major debates among policymakers, largely due to the low accuracy of prior forecasts.
Having said that, there is an anticipation of a slowdown in economic growth for the years 2023 and 2024, a projection that aligns reasonably well with market expectations. According to a Reuters survey of economists, euro area GDP growth is forecasted to be 0.6% for the current year and 0.9% in 2024.
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