Euro Zone Inflation Outlook

FRANKFURT (Reuters) – Euro zone inflation could be a touch higher this year than earlier thought but will then stabilize at the European Central Bank’s (ECB) 2% target, according to the bank’s Survey of Professional Forecasters released 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 rising that price growth may come in even lower than earlier thought.

The ECB’s survey, often a key input into policy deliberations, indicated that 2025 inflation is averaging 2.2%, up from the 2.1% predicted three months ago, while the 2026 number increased to 2.0% from 1.9%.

However, these figures may be less significant than in the past since the ECB’s cutoff for collecting projections was April 4. Financial markets have shifted significantly since then, primarily due to the U.S.’s erratic trade policy.

The euro has appreciated considerably against the dollar, and energy prices have fallen, changes that could significantly slow inflation.

Trade barriers and tensions with the U.S. could also sharply slow economic growth and weigh on prices.

The survey showed only a minor revision in the growth outlook, projecting 2025 expansion at 0.9%, down from the previous 1.0%. This suggests that not all of the trade tension has been fully accounted for yet.

ECB President Christine Lagarde earlier indicated that a full trade war could potentially reduce growth by up to 0.5 percentage points.