ECB inflation projections: Important but not crucial – Rabobank

Research Team at Rabobank, expects that the ECB’s inflation projections (with 2019 featuring for the first time in this projection round) are likely to show that inflation will creep towards the ECB’s self-imposed target of “close to but below 2%”.

Key Quotes

“However, given the uncertain political situation and the subdued level of underlying inflation and wages, we believe the ECB cannot take these projections for granted. The disappointing track-record of inflation projections over the past few years only strengthens this view.”

“Although a 3 month extension to the asset purchase program would in principle be sufficient to take us beyond the French elections (a clear political risk event), more time is likely to be required before the ECB can argue safely that underlying inflation indicators are moving into the right direction (and, in fact, even this is still quite uncertain).”

“Therefore, we expect Mr. Draghi to announce a 6 months extension of the purchase program, so that it should end in September 2017 (at the earliest).”