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Key ECB survey points to dropping inflation expectations

Key ECB survey points to dropping inflation expectations
FILE PHOTO: Inflated euro sign is seen outside the new headquarters of the European Central Bank (ECB) in Frankfurt, January 22, 2015. REUTERS/Kai Pfaffenbach -
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Kai Pfaffenbach(Reuters)
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FRANKFURT (Reuters) – Euro zone inflation expectations continued to drop, a key European Central Bank survey showed on Friday, underpinning the bank’s plans to compile a fresh stimulus package to revive price pressures.

Inflation at 1.4% is now expected for next year, below a previous projection for 1.5%, and the 2021 forecast was cut to 1.5% from 1.6%, both short of the ECB’s target of almost 2%, according to the quarterly Survey of Professional Forecasters, a key input in policy deliberations.

At Thursday’s ECB meeting, President Mario Draghi all but pledged to ease policy in September as the growth outlook deteriorates and even hinted at a reinterpretation of the ECB’s inflation target, the cornerstone of its policy framework.

In the longer term, defined as five years into the future, inflation was projected at 1.7%, below a previous forecast of 1.8%, indicating that longer-term inflation expectations may be de-anchoring.

With a global trade war sapping confidence, Europe’s export-focused manufacturing sector has been in free fall recently. That threatens to infect a so-far resilient domestic economy, which has yet to fully recover from the euro zone’s debt crisis.

Growth projections, however, were little changed. The survey sees economic growth at 1.2% this year, unchanged from three months earlier. Growth projections for 2020 were revised to 1.3% from 1.4%

Growth of 1.4% is still foreseen for 2021. The longer-term projection was also unchanged at 1.4%.

(Reporting by Balazs Koranyi, editing by Larry King)

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