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Inflation slump to hit in early 2018: ECB

[FRANKFURT] Inflation in the eurozone will slump in early 2018, the European Central Bank forecast Monday, but return to an upward path towards its target later in the year.

Price growth could fall as low as 0.9 per cent in the first quarter, the ECB said in its regular economic bulletin, far short of governors' target of just below two per cent.

Prices in the 19-nation single currency area rose rapidly in early 2017, driven by sharp changes in the cost of food and oil, it said.

That means inflation in early 2018 will be much lower, as forecasts suggest prices will have grown more slowly in a year-on-year comparison with the first quarter of this year.

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The ECB analysts said that inflation should be back on course towards its target by the second half of 2018, barring unexpected price developments.

In quarterly forecasts released earlier in September, the central bank said it expected inflation to average 1.5 per cent in 2017 and 1.2 per cent in 2018 - a slight downgrade for next year compared with earlier predictions.

Observers are keenly awaiting bank governors' announcement that they will wind down mass bond-buying.

Such "quantitative easing" is designed to infuse cash into the economy and drive inflation in the eurozone towards the two per cent target, believed to be most favourable to growth.

ECB President Mario Draghi has said policymakers will likely make a move in October.

But interest rates, the central bank's other lever for managing inflation, are expected to remain low long after its 60-billion-euro (S$96.43 billion) per month purchases of government and corporate debt have ended.

AFP

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