Consumer price growth in the euro area last month is forecast to have fallen to the level preferred by the European Central Bank, setting the stage for more interest rate cuts on Thursday

Economists expect euro area inflation for the latest month to have eased to around the European Central Bank’s 2% target, reinforcing expectations that the ECB will deliver another interest rate cut at its upcoming policy meeting. The call is based on projections for the Harmonised Index of Consumer Prices (HICP), the ECB’s preferred gauge of inflation, which it aims to keep at 2% over the medium term as a symmetric target, meaning deviations above and below 2% are viewed as equally undesirable. The backdrop is the ECB’s strategy review completed in 2021, which formalised a symmetric 2% inflation objective and made clear that monetary policy decisions are guided by medium‑term inflation dynamics rather than monthly volatility. With headline inflation projected to be at or very close to this target, and underlying price pressures having eased from their post‑pandemic peaks, rate‑setters have greater room to shift from an anti‑inflation stance toward supporting growth. The anticipated cut would follow earlier tightening aimed at curbing the euro area’s surge in inflation and would signal a new phase of the policy cycle, affecting borrowing costs for governments, companies and households across the currency bloc. For markets and policymakers, confirmation that inflation is sustainably near 2% is pivotal. It would support the narrative that earlier rate hikes have largely done their job and that the ECB can gradually normalise policy without jeopardising price stability. At the same time, the Governing Council remains focused on ensuring that inflation expectations stay anchored, meaning it will still closely monitor energy prices, wage growth and core inflation before committing to a faster pace of easing.

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• Two per cent inflation target - European Central Bank (ecb.europa.eu)
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• Measuring inflation and consumer prices - European Central Bank (ecb.europa.eu)

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