SPF – Increasing doubts about approaching inflation target

This morning, the ECB released the results of a recent survey of professional market observers on the economic and inflation trends in the Euro-Zone. According to the Survey of Professional Forecasters (SPF), the economic outlook for the Eurozone for the coming year has deteriorated slightly. The GDP outlook for 2020 was lowered to 1.3% from 1.4%. The growth outlook for 2021 was left unchanged at 1.4%. Compared with the current ECB staff projections, the SPF survey assumes a slightly weaker cyclical dynamic for the coming year (see table below).

With regard to further inflation developments, the SPF survey points to inflation remaining at a low level in the coming years. Market observers have revised their previous forecasts downwards across all forecast horizons. For the coming year, respondents expect an inflation rate of 1.4%. In 2021, the inflation rate is expected to be only marginally higher at 1.5%. It is particularly noteworthy that survey participants have also lowered their long-term inflation outlook to 1.7% from the previous 1.8%. This can be interpreted as meaning that market observers do not consider the current monetary policy measures of the central bank to be sufficient to achieve the ECB’s inflation target in the medium term.

The fact that survey participants are increasingly questioning a medium-term approach to the inflation target increases the pressure on the monetary authorities to act considerably. At yesterday’s Council meeting, Draghi already fanned the imagination for further monetary policy measures. If the currency watchdogs hold still after the summer break, this would probably be a bitter disappointment for the financial markets.

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