Revised Inflation Expectations for 2025 Amidst Trade Tensions

Strategic Insights -

The European Central Bank's (ECB) latest survey revealed that inflation expectations for 2025 have been revised slightly upwards, primarily due to recent incoming data. This revision is largely confined to 2025, while expectations for 2026 and 2027 remain unchanged. Meanwhile, growth expectations for 2025 have been revised upwards by 0.1 percentage points, while those for 2026 and 2027 remain unchanged. Unemployment rate expectations remain unchanged.

Key Takeaways:

  • Inflation expectations for 2025 have been revised up to 2.1%, mainly due to recent incoming data, while expectations for 2026 and 2027 remain unchanged at 1.8% and 2.0% respectively.
  • Core HICP inflation expectations, excluding energy and food, followed a similar pattern, with an upward revision of 0.1 percentage points for 2025.
  • Longer-term expectations for both headline inflation and core HICP inflation remain unchanged at 2.0%.
  • Real GDP growth expectations were revised up by 0.1 percentage points for 2025 to 1.2%, while expectations for 2026 and 2027 remain unchanged at 1.1% and 1.4% respectively.
  • Growth expectations for the longer term remain unchanged at 1.3%.
  • The expected trajectory of the unemployment rate remains unchanged, with an average rate of 6.3% in 2025 and 2026, and a decline to 6.2% in 2027, where it is expected to remain in the long term.
  • Tariffs are expected to have a minor downward impact on inflation in the nearer term (-0.04 and -0.06 percentage points in 2025 and 2026 respectively) but be broadly neutral on balance in the longer term (2030).
  • The expected downward impact of tariffs on real GDP growth is largely confined to the nearer term.

Statistics:

  • Inflation expectations for 2025: 2.1%
  • Inflation expectations for 2026: 1.8%
  • Inflation expectations for 2027: 2.0%
  • Core HICP inflation expectations for 2025: 1.9% (up from 1.8% previously)
  • Real GDP growth expectations for 2025: 1.2% (up from 1.1% previously)
  • Unemployment rate expectations for 2025: 6.3%
  • Unemployment rate expectations for 2027: 6.2%
  • Expected downward impact of tariffs on inflation in 2025: -0.04 percentage points
  • Expected downward impact of tariffs on inflation in 2026: -0.06 percentage points
  • Expected impact of tariffs on inflation in 2030: neutral on balance

Sources:

  • European Central Bank
  • Contify.com
  • MIL OSI Economics