Eurozone inflation to stabilise at the 2 per cent target of ECB
- 3 hours ago
Eurozone inflation could be a touch higher this year than earlier thought but will then stabilise at the European Central Bank’s 2 per cent target, the bank’s Survey of Professional Forecasters showed on Tuesday.
The ECB cut interest rates for the seventh time in a year on Thursday, arguing that disinflation was well on track and risks were on the rise that price growth comes even lower than earlier thought.
The ECB’s survey, often a key input into policy deliberations, showed 2025 inflation averaging 2.2 per cent, above the 2.1 per cent predicted three months ago while the 2026 number was lifted to 2.0 per cent from 1.9 per cent.
However, these numbers may be less significant than in the past since the ECB’s cut off for collecting projections was April 4 and financial markets have shifted significantly since then due to the US’s erratic trade policy.
The euro has firmed sharply against the dollar and energy prices have fallen, changes that could significantly slow inflation.
Trade barriers and tensions with the US could also sharply slow economic growth and weigh on prices.
The survey, however, only showed a small revision in the growth outlook, putting the 2025 expansion at 0.9 per cent versus the previous 1.0 per cent number, suggesting that not all of the trade tension is yet factored in.
ECB President Christine Lagarde earlier argued that a full trade war could deduct up to 0.5 percentage point of growth.
Eurozone government bond yields steadied on Tuesday as traders returning from the long weekend reassessed their outlook for the economy after the European Central Bank’s rate decision on Thursday and comments that US tariffs would knock growth.
Investors were also digesting US President Donald Trump’s Monday warning that domestic growth could slow unless the Federal Reserve cut interest rates immediately, which triggered a sell-off in long-dated Treasuries.
German 10-year bond yields, the benchmark for the Eurozone bloc, inched up 0.5 basis points to 2.47 per cent. Italy’s 10-year yield was 1.4 basis points higher at 3.66 per cent.
Trump repeated his criticism of Fed Chair Jerome Powell, who says rates should not be lowered until it is clearer Trump’s tariff plans won’t lead to a persistent surge in inflation.
The spread between US 10-year Treasuries and German Bunds widened to 195 bps. The premium investors demand to hold US debt rather than German has increased by 48 basis points so far in April, heading for its biggest monthly rise since June 2003, according to LSEG data.
Germany’s two-year bond yield, which is more sensitive to ECB rate expectations, extended its slide on Tuesday, falling by 2.9 bps to 1.64 per cent.
It dropped about 7 bps on Thursday after investors priced in more rate cuts by the ECB after the central bank lowered interest rates to 2.25 per cent last week.