–Staff Also Raises GDP Growth Forecasts For Both Years
–Forecasts Come Amid Sharply Hawkish Language, Clear Rate Hike Signal
PARIS (MNI) – Eurosystem staff have raised their forecast for
Eurozone inflation in both 2011 and 2012, while also lifting the growth
projection for both years as well, ECB President Jean-Claude Trichet
announced Thursday.
The forecasts came amid a sharp ratcheting up of hawkish language:
Trichet stopped just short of announcing that the ECB would hike rates
next month.
The HICP forecast for 2011, as expected, was raised significantly
on the back of higher oil and commodity prices to a midpoint of 2.3%,
well above the ECB’s comfort threshold of 2.0%. This compared with 1.8%
in the staff’s previous forecasts published in December and is due to
sharp increases in the price of oil and other commodities since then.
The 2012 projection, which is more indicative the medium-term trend
the central bank is monitoring, shows inflation dropping back to 1.7%,
which is still above December’s forecast of 1.5%.
While the 2012 forecast shows inflation dropping back below the
ECB’s threshold over the medium term, the central bank nonetheless
clearly signalled an interest rate hike would be coming sooner than
previously anticipated.
Trichet said that “strong vigilance was warranted” on inflation,
using the same language the ECB had used in the last tightening cycle to
prepare markets for a tightening move a few months later. Moments later,
he removed all doubt, saying the change in language meant “an interest
rate hike is possible next month.”
The new ECB forecast puts 2011 GDP at a midpoint of 1.7%, up from
1.4% in the December forecast. For 2012, the ECB staff now sees growth
of 1.8%, up from 1.7% in the December forecasts.
The following table contains the ECB’s new forecasts, compared with
the ones they issued in December.
New Projections December Projections
Range Midpoint Range Midpoint
2011 GDP +1.3% to +2.1% +1.7% +0.7% to +2.1% +1.4%
2012 GDP +0.8% to +2.8% +1.8% +0.6% to +2.8% +1.7%
2011 HICP +2.0% to +2.6% +2.3% +1.3% to +2.3% +1.8%
2012 HICP +1.0% to +2.4% +1.7% +0.7% to +2.3% +1.5%
–Paris newsroom, +331-42-71-55-40; paris@marketnews.com
[TOPICS: MT$$$$,M$X$$$,M$$EC$]