By Hans Bentzien
FRANKFURT (Dow Jones)–The German Bundesbank is not convinced that longer-term inflation expectations for the euro area are anchored at 2 percent. “The one-year forward probabilities for the inflation rate make it clear that market participants are more likely to fear an inflation rate that is above the inflation target in the next few years than one that is below it,” writes the Bundesbank in its monthly report for November.
From a market perspective, the inflation risks remain upward and are not distributed symmetrically around the inflation target. “Market participants remain willing to insure themselves against higher-than-expected inflation by purchasing inflation swaps or options,” the report continued. From the market’s perspective, there is still a risk that inflation could remain above the price stability norm in the long term.
According to the Council of the European Central Bank (ECB), “most measures of longer-term inflation expectations” were recently around 2 percent. “However, some indicators are elevated and need to be closely monitored,” the October 27 monetary policy statement continued. Some survey-based inflation expectations have also increased.
Inflation expectations carry the risk of a self-fulfilling prophecy.
Contact the author: [email protected]
DJG/hab/apo
(END) Dow Jones Newswires
November 20, 2023 06:15 ET (11:15 GMT)