Oil prices cast shadow over eurozone inflation outlook

GMT 10:20 2016 Friday ,22 January

Arab Today, arab today Oil prices cast shadow over eurozone inflation outlook

According to the ECB's regular quarterly survey of professional forecasters
Frankfurt - AFP

Falling oil prices are weighing on the outlook for inflation in the euro area this year, but the European Central Bank's 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 two percent.

In a previous survey in the fourth quarter of last year, forecasters had been pencilling 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.

Turning to the growth outlook for the 19 countries that share the euro, the survey saw no change in experts' growth forecasts.

"Real gross domestic product growth expectations are unchanged," the ECB said.

"Respondents forecast growth in private consumption and investment as the main drivers of the ongoing economic expansion," it said.

Domestic demand would be strengthened by the low level of interest rates, as well as by the current low level of energy prices, "which is supporting the disposable income of households and profit margins of companies," the ECB said.

The ECB Survey of Professional Forecasters (SPF) collects the views of experts affiliated with financial or non-financial institutions based within the European Union.

While the ECB insists that the survey results do not represent the views of its staff and decision-making bodies, the SPF survey usually provides an indication of where the ECB's own forecasts -- scheduled for release on March 10 -- are headed.

The latest survey was conducted between January 5 and 11  and there were 57 respondents, the ECB said.


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