In March, before the U.S. imposed tariffs on most nations triggering a global trade war, euro zone consumers had increased their inflation expectations for the coming years, according to a European Central Bank survey.
The survey, which included 19,000 consumers from 11 euro zone nations, showed inflation over the next 12 months was expected to be 2.9%, up from 2.6% in the previous month. The three-year-ahead figure rose to 2.5% from 2.4%.
However, these figures were calculated prior to the U.S. tariffs, which have fundamentally altered the global economic outlook. The euro has since strengthened, energy prices have declined, and economic growth is likely to be weaker, all of which are likely to reduce price growth. The situation is further complicated by China, which may flood Europe with cheap goods due to reduced access to the U.S. market, potentially driving inflation down even further.
In light of these changes, the ECB cut interest rates again in April, citing weak growth. Some policymakers are even concerned that the ECB may once again fail to meet its 2% inflation target.
ECB board member Piero Cipollone voiced concerns on Tuesday about the potential recessionary impact of a global trade war on the euro zone. Cipollone highlighted that both economic growth and inflation could be negatively affected, leading to a more fragmented global economy, impeding capital flow, and possibly undermining the U.S. dollar’s status as a safe haven currency.
Cipollone’s comments underscored the possibility of a further ECB rate cut in June. He stated that the recent surge in trade policy uncertainty could diminish euro area business investment by 1.1% in the first year and real GDP growth by approximately 0.2 percentage points in 2025-26. He further noted that the increase in financial market volatility might lead to a GDP growth reduction of about 0.2 percentage points in 2025.
The impact on inflation, although less definite, could potentially be disinflationary for the euro area in the short to medium term, Cipollone added.
Source : Investing