By Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – Eurozone inflation may decrease faster than expected, while economic growth looks weak, according to ECB officials and new surveys. This suggests interest rate cuts may happen soon.
The ECB cut interest rates for the third time this year on Thursday due to easing price pressures. Investors anticipate cuts at the next four or five central bank meetings, as inflation approaches the 2% target and the economy shows signs of recession.
Sources indicate inflation might reach 2% sooner than previously thought, leading some officials to consider dropping their commitment to tight monetary policy, hinting at further rate cuts.
Estonian central bank Governor Madis Müller noted significant changes in economic outlook since the ECB’s last forecasts in September, predicting slower growth and reduced price pressures.
The ECB’s own Survey of Professional Forecasters supports this, showing inflation could return to 2% much quicker than the ECB expected. The survey predicts a price growth of 1.9% next year, lower than earlier estimates.
Despite the ECB expecting inflation to reach 2% by late 2025, the survey suggests this could happen sooner, especially as underlying price growth slows. Economists have adjusted their forecasts following a recent dip in inflation to 1.7%.
HSBC projects inflation may rise to 1.9% in October and exceed 2% in December, then remain between 1.6% and 1.8% for much of early 2025.
‘CLEAR DIRECTION’ ON RATES
Policy decisions are influenced by stagnant economic growth. An ECB survey of major companies revealed a slowdown in business activity, despite some growth in the service sector helping to counter manufacturing declines.
Concerns about competitiveness, the green transition, and high costs are affecting investment and consumer confidence, contributing to slower price growth and further justification for potential rate cuts.
The ECB has struggled with high inflation for the past three years, but some officials believe there’s a risk of falling below the 2% target.
“The direction is clear – we should continue to cut restrictive monetary policy appropriately,” stated French central bank chief Francois Villeroy de Galhau, emphasizing that adjustments should be made pragmatically.
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