Euro area inflation is projected to climb in the near term because of higher energy costs, then decline to near the European Central Bank's 2% goal over the medium term, according to the ECB's quarterly Survey of Professional Forecasters released Monday. The survey, which was examined by policymakers at last week's rate-setting meeting, expects inflation to average 2.7% this year before easing to 2.1% by 2027 and settling at 2.0% in 2028.
The survey comes after euro zone inflation rose to 3% last month. With oil prices remaining high, a further uptick in headline inflation is still likely, a dynamic the forecasters say makes it increasingly probable that the central bank will need to raise interest rates to prevent longer-term price expectations from drifting upward.
Importantly for policymakers and market participants, the panel of forecasters does not anticipate large second-round effects from the energy-driven price increase. Measures of underlying inflation, which exclude volatile energy and food components, are seen averaging 2.2% in both 2026 and 2027. That assessment indicates forecasters expect underlying price growth to remain contained even as headline inflation temporarily accelerates.
Market indicators differ from the survey in some respects. Certain market-derived measures show inflation remaining above 2% for several years, even as market participants price in the central bank raising interest rates three times this year. These differing signals reflect continued uncertainty about how persistent recent energy price moves will prove.
The survey also points to slower economic momentum this year. Forecasters now see expansion at 1.0% for the year, down from the 1.2% projection issued three months earlier and below the 1.3% figure considered to represent long-term growth potential. The report explicitly links weaker growth prospects to the economic fallout from the war in Iran.
Taken together, the survey frames a near-term policy challenge for the ECB: managing a temporary energy-driven jump in headline inflation while monitoring whether underlying inflation and growth dynamics evolve in ways that would justify more persistent policy tightening.