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ECB: March Projections: Headline Inflation Seen Stuck Around 2.3% Through 2025

ECB
BundesbankCentral Bank NewsFixed Income BulletsCEEMEAEurozoneGermanyBulletMarketsEuropean Central BankForeign Exchange Bullets

Headline inflation is now expected to return sustainably to the 2% target in Q1 2026 (vs Q4 2025 in the December projections). While President Lagarde played down the impact of this adjustment in the press conference (being largely driven by the technical assumption cut-off), it’s still another projection round whereby the timeline for getting back to target has been pushed back. 

  • Somewhat notably, headline inflation is seen at around 2.3% throughout 2025 (on the back of higher food and energy prices), before abruptly moving back to 2.0% in Q1 2026.
  • The technical assumptions were as expected: “Higher commodity prices and a weaker exchange rate, while interest rate assumptions are broadly unchanged”.
  • Core inflation is still expected to slip below 2% in the latter half of 2026. Disinflation is expected to begin in earnest in early 2025, “as the effects of lagged repricing fade, wage pressures recede and the impact from past monetary policy tightening continues to feed through”.
  • Given the projections only account for trade barriers that had been announced at the time of the cut-off: “External price pressures, as reflected in import prices, are expected to remain moderate assuming that EU trade tariff policies remain unchanged”.
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Headline inflation is now expected to return sustainably to the 2% target in Q1 2026 (vs Q4 2025 in the December projections). While President Lagarde played down the impact of this adjustment in the press conference (being largely driven by the technical assumption cut-off), it’s still another projection round whereby the timeline for getting back to target has been pushed back. 

  • Somewhat notably, headline inflation is seen at around 2.3% throughout 2025 (on the back of higher food and energy prices), before abruptly moving back to 2.0% in Q1 2026.
  • The technical assumptions were as expected: “Higher commodity prices and a weaker exchange rate, while interest rate assumptions are broadly unchanged”.
  • Core inflation is still expected to slip below 2% in the latter half of 2026. Disinflation is expected to begin in earnest in early 2025, “as the effects of lagged repricing fade, wage pressures recede and the impact from past monetary policy tightening continues to feed through”.
  • Given the projections only account for trade barriers that had been announced at the time of the cut-off: “External price pressures, as reflected in import prices, are expected to remain moderate assuming that EU trade tariff policies remain unchanged”.
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