Shrutee Sarkar

BENGALURU – Euro zone inflation expects to continue to exceed the European Central Bank’s 2% target next years, according to a Reuters poll. This was based on economists who have raised their consumer price outlook for the fifth consecutive month.

Despite the fact that inflation rose to above 4% last week, exceeding twice the ECB target, the Bank – which is different from other central banks – has resisted the calls for tighter policies. The Bank called the increase in inflation temporary and said it would decrease next year.

These views are challenged by rising oil prices, pandemic-driven supply disruptions, and pandemic-driven shortages. Surging house prices https://www.reuters.com/article/ecb-policy-idUSKBN2HU22B are putting further pressure on the ECB, which has undershot its inflation target for nearly a decade, to act.

Peter Vanden Houte chief economist at ING stated that “the inflation story is becoming more difficult for the ECB.”

Although we believe that oil and price inflation will not continue at the same pace by 2022 (we are actually projecting a drop), the upward inflation impact may last slightly longer. High commodity prices and scarcity have pushed up goods price inflation.

After rising to 2.4% in October, the Eurozone inflation rate was expected to average 2.2% next years. This compares to 1.8% and 2.3% respectively. These forecasts exceed the ECB projections of 1.7% and 2.2%, respectively.

Inflation was forecast to be between 4.1% and 3.1% in the next quarter on a quarterly basis. In the last month’s survey, it was predicted at 3.5% and 2.5%. Inflation in October https://www.reuters.com/world/europe/euro-zone-inflation-equals-all-time-high-growth-accelerates-2021-10-29 was 4.1%, matching the all-time high set in July 2008.

While economists predicted a lower price increase for 2022 due to the higher year-end base, they still expect inflation to be above the ECB’s target.

Forecasts show that the ECB will keep its key interest rate levels on hold until at least end-2023, with its deposit rate at -0.50% as well as its refinancing and financing rates at zero.

In the Nov. 8-11 poll, a lower percentage of economists who were open to looking beyond the end-2023 period saw a deposit rate increase to -0.25% in the year following.

However, a similar-for-like analysis revealed that less analysts are now expecting a rise in 2024 as compared with the October poll. A mere two analysts predicted a rate rise next year.

“Despite the ECB’s pushback, the markets believe the central banking is still behind the curve. However, we agree to the assessment of the central bank and do not anticipate a rate rise next year,” Angel Talavera from Oxford Economics, heads Europe economics.

According to more than 85% of the respondents (27 of 31), who answered additional questions, Eurozone GDP will rise to its pre-COVID-19 levels this quarter. From October, the growth prospects for the bloc were stable and almost unchanged.

After the Pandemic Emergency Purchase Programme expires on March 31, the ECB’s Asset Purchase Programme is (APP) set at 20 Billion Euros per month. It will rise to 40 Billion. The poll’s highest prediction was 60 billion euro.

A majority of 16 economists (or nearly 70%) who answered another question predicted that the APP will be completed by 2023. It would be over by 2024, according to the rest.

13 of the 22 respondents stated that if an ECB approval is given for an APP rise, an envelope would cover a longer time period. Other respondents said it would have a fixed monthly volume.

“With other major central banks raising rates in 2022 – and thereby leading to potentially ‘unwarranted’ tighter conditions for the euro area too via spillover effects – we think the ECB will prefer to reserve capacity to buy more, if needed and flexibly over time in 2022,” said George Buckley, chief UK and euro area economist at Nomura.

(Also see: Reuters long-term global economic outlook polls package for other stories)