A European Central Bank survey released on Friday indicates that inflation expectations across the euro area have remained broadly unchanged over the past three months and that price growth is forecast to slow markedly next year before aligning with the ECB's 2% target in 2028.
The survey, which the ECB uses as an input into its policy deliberations, shows inflation averaging 2.7% for this year, a projection left unchanged from the previous quarter. The forecast for 2027 was nudged up to 2.2% from 2.1%, while the survey projects inflation will reach 2% in 2028 and remain at that level.
Inflation has been running at about 3% for months, a situation the survey links to surging energy costs. The document also notes that most economists believe price growth is close to its peak and will decline back towards the 2% target sometime in 2027.
The ECB left interest rates unchanged at its most recent meeting on Thursday, citing that the jump in energy prices had not yet generated second-round effects that would embed higher inflation more persistently. At the same time, the central bank signaled that further tightening remains a possibility, potentially as early as September.
Policymakers also pointed to subdued economic momentum as a reason to pause. The survey's updated projections underline that weakness: growth for this year is forecast at 0.6%, down from the 1.0% projection made three months earlier. The outlook for next year was revised slightly lower to 1.2% from 1.3%.
Taken together, the survey presents a view of an economy where headline inflation has been elevated in the near term due to energy-driven pressures, but is expected to ease over the medium term, while growth remains lackluster in the nearer horizon.
Context note: The survey figures and guidance above reflect the projections published by the European Central Bank and were unchanged or adjusted exactly as reported in the ECB's survey release.