ECB survey says trough reached in eurozone inflation

Eurozone inflation has ‘more or less’ reached a trough and will start moving higher again in the next few years, a survey by the European Central Bank forecast on Thursday. Inflation in the 18-country eurozone slowed to a meagre 0.4 per cent in July, the lowest level since late 2009 and way off the ECB's target of just under 2.0 per cent. Declining inflation is a concern because it carries the risk of outright falling prices, known as deflation, which deters consumers from spending in the belief they can wait and buy more cheaply later. In concrete terms, the forecasters predicted that area-wide inflation will reach an annual average 0.7 per cent this year and then pick up to 1.2 per cent in 2015 and 1.5 per cent in 2016, the ECB said. The new forecasts mark a downward revision from previous predictions. At the time of its last SPF survey in May, forecasters had been pencilling in inflation of 0.9 per cent for this year and 1.3 per cent next year. Over the longer term, the rate of inflation could reach 1.9 per cent, the survey found. Turning to the growth outlook, the SPF survey predicted that area-wide gross domestic product (GDP) would return to growth of 1.0 per cent in 2014 and 1.5 per cent in 2015 after contracting last year.  Momentum would pick up to growth of 1.7 per cent in 2016 and 1.8 per cent in the longer term, the ECB survey found, according to AFP.