Higher Than Expected Inflation
Recent data on inflation in Europe, released on the 6 May, reveals that the Consumer Price Index (CPI) has increased by 2.6% over the last 12 months. This rise surpasses economists’ expectations, who were anticipating an increase of 2.5%, already higher than the previous figure.
Revised Interest Rate Forecasts
This situation prompts economists to revise their forecasts regarding a reduction in interest rates by the European Central Bank (ECB). While they initially expected six quarter-point reductions in the deposit rate (currently at 4%) throughout the year, they now anticipate only five, with the first one expected as soon as next week.
ECB Statements and Economic Factors’ Impact
Since last April, expectations for a rate cut by the ECB have been reinforced by statements from officials, including President Christine Lagarde, who hinted at potential action in June. This decision would come before those of the US Federal Reserve and the Bank of England.
Federal Reserve Caution
Economists also note that the caution of the US Federal Reserve could limit the ECB’s room for maneuver, despite Christine Lagarde’s assertions that the policies of the two central banks are not interconnected.
Risks to the Eurozone Economy
Survey respondents continue to view inflation as the primary risk to the eurozone economy, followed by the repercussions of the US presidential election and geopolitical tensions.
Wage Growth and Price Pressure
In May, inflation slightly accelerated after two months at 2.4%, reaching 2.5% over the last 12 months. Wage growth, which did not slow down in early 2024, is exacerbating pressure on service prices, which continue to increase at a rate close to 4%.
ECB Expectations and Growth Outlook
In this context, three-quarters of respondents believe that the ECB will not provide clear meeting-to-meeting guidance, particularly since officials have promised to pay special attention to quarterly economic projections. For this time, survey respondents do not anticipate revisions to the ECB’s projections, except for an increase in economic growth prospects for 2024, following a better-than-expected first quarter.
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