ECB: Survey of Professional Forecasters Shows Inflation Expectations on the Rise

29 October, 2021

By David Barwick – FRANKFURT (Econostream) – Professional forecasters surveyed by the European Central Bank revised up their inflation expectations markedly, according to the ECB’s Survey of Professional Forecasters for the fourth quarter of 2021, released on Friday.

In the survey, conducted between October 1 and 11 and yielding 58 responses, forecasters projected euro area HICP at 2.3%, 1.9% and 1.7% for 2021, 2022 and 2023, respectively, representing increases versus the 3Q survey of 0.4, 0.4 and 0.2 point. Longer-term inflation expectations for 2026 were revised up 0.1 point to 1.9%.

With respect to the near to medium term, the ECB said that ‘[r]espondents attributed the upward revisions mainly to higher energy prices and the impact of supply chain tensions. Although both these factors were also cited in the previous round, the recent developments were seen to have been more intense and were expected to be more persistent than previously anticipated.’

The upward revisions left professional forecasters’ expectations above the ECB staff macroeconomic projections, last updated in September and due for revision in December. These call for HICP of 2.2%, 1.7% and 1.5% in 2021, 2022 and 2023, respectively.

According to the ECB, respondents anticipated ‘a sharp fall in inflation during the course of 2022’, but that energy prices and supply chain issues would first boost inflation further at the end of 2021.

‘Regarding the broader factors influencing the inflation outlook, respondents on average believed that underlying inflation pressure would gradually rise in line with the recovery in economic activity’, the ECB said.

As for wages, pandemic-related labour market disruptions would exert a dampening effect, but ‘the recovery in economic activity and the decline in the unemployment rate would gradually open up the scope for higher but still largely moderate increases in wages’, the ECB said.

‘A number of respondents mentioned the possibility of second-round effects from the current high inflation rates on wage settlements, but considered the probable magnitude to be limited (owing to the still considerable amount of slack in the labour market)’, the ECB added.

As to growth, survey participants saw real GDP growth at 5.1%, 4.5% and 2.2% in 2021, 2022 and 2023, respectively, an upward revision of 0.3 point for 2021, a downward revision of 0.1 point for 2022 and an upward revision of 0.1 point for 2023.

The unemployment rate was estimated at 7.8%, 7.4% and 7.2% for 2021, 2022 and 2023, respectively, with the 2026 rate of 7.0% the lowest for long-term unemployment expectations in 13 years, the ECB said.