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Eurozone economists cut inflation forecasts

Eurozone economists cut inflation forecasts

BRUSSELS: Inflation forecasts in the eurozone have been cut in a survey of private sector economists carried out by the European Central Bank, underscoring policymakers’ difficulties in stoking prices pressures even as the recovery takes grip.

In its latest quarterly survey of forecasters, annual inflation projections were cut by 0.1 percentage point in each of the next three years, suggesting that banks and financial firms think the ECB will still undershoot its inflation target in 2019.

Annual inflation is expected to average 1.5 per cent, 1.4 per cent and 1.6 per cent in 2017, 2018 and 2019 respectively, according to the survey. Current eurozone inflation stands at 1.3 per cent, while the ECB’s target is just under 2 per cent.

Despite more than two years of extraordinary stimulus measures, the ECB still doesn’t think inflation is self-sustaining in the eurozone. At his latest press conference yesterday, Mario Draghi, ECB president, repeated the central bank was in no rush to scale back its bond purchases.

“Headline inflation is dampened by the weakness in energy prices”, aid Mr Draghi, adding: “Measures of underlying inflation remain overall at subdued levels. Therefore, a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term.”

But the comments were not enough to stop a rally in the euro, which has hit its highest level in two years against the dollar this morning. A stronger exchange rate is a concern for the ECB, as it will keep a lid on inflationary pressures.

In better news, eurozone economists revised up their growth projections to 1.9 per cent this year from 1.7 per cent, and 1.8 per cent and 1.6 per cent in 2018 and 2019. Unemployment is also forecast to drop to as low as 8.4 per cent two years – a 2009-low.