FRANKFURT (Reuters) – The European Central Bank revised up its inflation projections for the next three years on Thursday and said it expected price growth to stay above its 2% target until the end of 2025.
It raised its 2023 and 2024 projections for inflation excluding volatile energy and food, which the ECB watches closely, citing past upward surprises and the implications of a robust labour market for the speed of disinflation.
Euro zone inflation soared into double-digit territory last year but has nearly halved since, even if price growth remains uncomfortably high, particularly for food and services.
While projections showing inflation at target would normally mean a pause in rate hikes, the ECB has underestimated price growth for years already and some policymakers openly question the reliability of its forecasts, given that poor track record.
Policymakers have also said the ECB should err on the side of tightening policy too much rather than too little because an early pause would mean having to keep policy tight for longer.
That is among the reasons why the bank raised interest rates for the eighth consecutive time on Thursday, taking its benchmark deposit rate to 3.5%, its highest in 22 years.
The ECB also slightly cut its growth projection for this year after revised data showed the bloc dipped into a shallow recession at the turn of the year, and more recent indicators pointed to poor manufacturing output.
The following are the ECB’s projections for inflation and economic growth. Previous projections from March are in brackets.
2023 2024 2025
GDP growth: 0.9% (1.0%) 1.5% (1.6%) 1.6% (1.6%)
Inflation: 5.4% (5.3%) 3.0% (2.9%) 2.2% (2.1%)
(Reporting by Balazs Koranyi; Editing by Catherine Evans)
