The currently very high consumer price inflation rates in the euro area are expected to gradually decline over the next two years, but are projected to remain well above the ECB’s target of two per cent over this period. Disruptions in international supply chains, raw material shortages and high energy prices are expected to become less important drivers of inflation by 2023. On the other hand, the relevance of wage growth in the euro area for the experts’ inflation expectations has increased significantly compared to previous surveys, especially for the year 2022.

It is not only consumers who are currently worried about rising inflation. Financial market experts also expect a higher inflation rate.
It is not only consumers who are currently worried about rising inflation. Financial market experts also expect a higher inflation rate.

These are the results of a survey among financial market experts conducted by ZEW between 29 October and 8 November 2021. About 150 people took part in the survey.

For the current year 2021, inflation forecasts average 3.2 per cent. Although inflation rates are expected to steadily decline over the next two years, an average price increase of 2.7 per cent is expected for 2022. For 2023, the average forecast is 2.2 per cent. For both years, the financial market experts also consider inflation rates of over three percent to be possible and estimate the probabilities for this at an average of 29.3 per cent for 2022 and 20.4 per cent for 2023.

“The inflation expectations of financial market experts rose again in November 2021. The respondents expect the currently very high inflation rates to gradually decrease by 2023. However, the forecast inflation rates for 2023 are still above the ECB’s inflation target of two per cent,” comments Frank Brückbauer, a researcher in ZEW’s “International Finance and Financial Management” Department and co-author of the ZEW Financial Market Survey.

Wage development gains importance as inflation driver

Respondents cite disruptions in international supply chains, raw material shortages and higher energy prices as the main factors driving high inflation next year. The impact of these factors is expected to weaken again from 2023. The importance of wage developments in the euro area for inflation, on the other hand, is increasing, according to the experts. Around 60 and 43 per cent of the respondents, respectively, say that they estimate the influence of wage developments on the inflation rate for the years 2022 and 2023 to be significantly greater than in August 2021.

“The increased importance of wage developments for the experts’ inflation forecasts indicates that the risk of inflation rates remaining permanently high has risen in the last three months,” says Brückbauer.

Date

15.11.2021

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