FRANKFURT — Falling oil prices are weighing on the outlook for inflation in the euro area this year, but the European Central Bank’s (ECB) stimulus measures and the gradual economic recovery will drive inflation higher again next year, an ECB survey showed on Friday.
According to the ECB’s regular quarterly survey of professional forecasters, eurozone inflation is expected to average 0.7 percent this year, but then pick up to 1.4 percent in 2017 and 1.6 percent in 2018, moving closer to the central bank’s target of just under 2 percent. In a previous survey in the fourth quarter of last year, forecasters had been penciling in an inflation rate of 1.0 percent for 2016 and 1.5 percent for 2017.
“In the short term, respondents expect a strong dampening impact on inflation from the latest oil price developments,” the ECB wrote.
“However, most respondents continue to envisage a strong pick-up in inflation in 2016 and 2017 … shaped by the ongoing expansion of economic activity and supported by the monetary policy stance,” it explained. “The weaker euro exchange rate in 2015 is expected to exert some upward pressure on inflation in 2016 as well,” it added.
The ECB sees an inflation rate of close to but just under 2.0 percent as conducive to healthy economic growth. And while the central bank held policy unchanged at its first rate-setting meeting of this year on Thursday, ECB chief Mario Draghi said it would review that monetary stance at the next meeting in March if inflation continues to remain stubbornly low.