A day after holding its deposit rate at 2.50 percent, the European Central Bank published the survey evidence behind its caution. Respondents to the fourth quarter Survey of Professional Forecasters lifted headline inflation expectations to 3.0 percent for 2026, up 0.3 percentage points, and to 2.6 percent for 2027, up 0.4 points. Expectations for 2028 and for the longer term, defined as 2031, were unchanged at 2.0 percent, and the ECB said longer term expectations remain anchored at target and slightly more tightly distributed than before, with about 68 percent of respondents expecting exactly 2.0 percent in the long run.
Core inflation expectations moved less. They were unchanged at 2.4 percent for 2026, revised up 0.2 points to 2.5 percent for 2027 and up 0.1 points to 2.2 percent for 2028. The ECB attributed the headline revisions mainly to higher and more persistent energy commodity prices and the indirect effects that follow. Forecasters have built indirect effects of about 0.3 percentage points into 2026 and 2027, with second round effects of only about 0.1 points, and they now expect the Middle East conflict to last ten to twelve months from its outbreak in late February, against one to three months expected earlier, with supply disruptions lasting ten to twenty four months.
Growth expectations were revised the other way. Forecasters now expect real GDP growth of 1.0 percent in 2026, up 0.4 points largely on better recent data, and 1.3 percent in each of 2027, 2028 and the longer term. Unemployment is expected to ease from about 6.4 percent in 2026 to 6.1 percent longer term, and nominal wage growth to decline gradually to 2.8 percent in 2028 and 2.7 percent longer term, though wage expectations for 2026 and 2027 were revised slightly up.
The risk balance is the part Frankfurt will quote. Risks to inflation are tilted to the upside for 2026 to 2028 and broadly balanced thereafter, while risks to growth are mainly on the downside, stemming primarily from geopolitical tensions and possible energy supply disruption. That is the survey version of the Governing Council’s own dilemma: the shock is lasting longer than hoped, its direct price effects are larger, and yet the wage and long term expectation channels that would turn a shock into a regime remain contained.