According to ECB Vice President Luis de Guindos, the inflation rate in the euro area could fall faster than the central bank expected in December.
There have been “more positive surprises” in inflation recently, de Guindos told the weekly newspaper “Die Zeit” in an interview published on Wednesday when asked when the ECB target of two percent would be reached: “My personal assessment is that it will be slightly lower than we recently forecast.”
In December, the European Central Bank (ECB) forecast an inflation rate of 2.7 percent for the current year. At the time, the central bank expected a rate of 2.1 percent for 2025. The ECB will publish its next forecast in March.
The ECB is aiming for a stable price level in the medium term with an annual inflation rate of 2 percent for the currency area of the 20 countries. A faster decline in inflation could open up room for interest rate cuts.
In order to curb the now very high inflation, the euro currency watchdogs have raised key interest rates ten times in a row since the summer of 2022. Higher interest rates make loans more expensive, which can slow down demand and counteract high inflation rates. However, more expensive loans are also a burden for the economy because loan-financed investments become more expensive.
Economic prospects are clouding over
According to de Guindos, the prospects for the economy in the euro area have worsened since the central bank’s December forecast. “Some forecast risks that we had identified have materialized: global trade has lost momentum, geopolitical uncertainties have increased, and our interest rate increases are having a strong and faster impact on the economy than expected,” said the ECB Vice President. “Therefore, growth in the euro zone could even be slightly below 0.8 percent.” In December, the ECB predicted economic growth of this magnitude for the current year. (dpa)