ZEW Survey Among Financial Market Experts: Danger of Inflation in the Eurozone is Decreasing

Over the next few months, the danger of inflation in the eurozone is likely to decrease. In the middle of the current year the inflation rate was at 2.4 per cent. A recent survey of the Centre for European Economic Research (ZEW) estimates an inflation rate of 2.25 per cent for the entire year 2012. A further slight decrease is expected for 2013. 228 financial market experts participated in the quarterly ZEW survey on inflation and monetary policy in August 2012. Against the backdrop of the expected inflation trend, many experts expect that the European Central Bank (ECB) will stick to its expansive monetary policy and use the leeway to cut interest rates.

Comparing the recent results to that of the survey from May 2012 shows that the experts’ fears of inflation in the eurozone are diminishing. At that time the financial market experts estimated an average inflation rate of 2.4 per cent for the entire year. However, according to the recent survey, the financial market experts now estimate a lower inflation of 2.25 per cent. The estimation hence lies noticeably below the eurozone’s actual inflation rate of 2.4 per cent, as measured by the "Harmonised Index of Consumer Prices" (HICP). Experts assume a declining inflation in 2013, as well. The expected average inflation rate of 2.15 per cent is close to the ECB inflation target of approx. two per cent. This is a significant decline compared to the May 2012 survey when financial market experts had estimated an inflation of 2.5 per cent.

Against the background of these favourable inflation expectations, the interviewed experts believe that the European Central Bank has leeway to reduce the main refinancing rate. 83.9 per cent of the experts assume that the Governing Council of the ECB will use this leeway to cut interest rates. According to the experts, another downward change in interest rates may follow after the reduction of the main refinancing rate by 25 basis points to 0.75 per cent in July 2012.

For further information please contact

Frieder Mokinski, Phone +49 621/1235-143, E-mail mokinski@zew.de