The European Central Bank is preparing to cut its inflation outlook across its forecast horizon at this week's policy meeting because of weaker energy prices, according to eurozone officials familiar with the matter.
The ECB's draft projections now show consumer-price growth at roughly around 1.5% each year in 2017, 2018 and 2019, the officials said, asking not to be identified because the information is confidential. The previous projections in March foresaw rates of 1.7%, 1.6% and 1.7%, respectively.
The outlook will be presented to the Governing Council at its two-day meeting in Tallinn that starts Wednesday, and the numbers aren't final until they are published on Thursday. Forecasts for core inflation, excluding energy and food, are likely to be little changed, and predictions for economic growth are likely to be revised up by about a tenth of a percentage point, the people said. A spokesman for the ECB declined to comment.
The euro slid as much as 0.6% to an intraday low of $1.1211 on the news. European stocks jumped and German bonds rallied, with the yield on 10-year debt at 0.249% at 12:30 p.m. Frankfurt time.
A downgrade to the inflation outlook would back the view of top policymakers, including President Mario Draghi and Chief Economist Peter Praet, that they must be extremely cautious in communicating and implementing any exit from monetary stimulus. The Governing Council is set to debate how to balance policy for the eurozone as economic growth solidifies but inflation remains muted.
Eurozone inflation has been volatile so far this year, reaching as high as 2% in February but slowing to 1.4% in May, when it missed economists' forecasts. The ECB's goal is to achieve an inflation rate of just less than 2% that can be sustained over the medium term without monetary support.
The rate has been affected by fluctuating oil prices, with Brent crude currently trading below $50 a barrel after climbing as high as $57 early in the year. Longer-term futures have also dropped.
Economists surveyed ahead of the meeting in the Estonian capital overwhelmingly expected the ECB to say the risks to economic growth are now balanced, but were split over whether officials will remove their bias toward easing monetary policy. None predicted any immediate change to interest rates or the size of the asset purchase program.
The ECB currently intends to buy €60 billion ($67 billion) of bonds a month until the end of December, and says it will increase the pace or duration of purchases if needed. It also says interest rates — the deposit rate is at minus 0.4% — will be kept at current or lower levels until well after the end of net asset purchases.
The March projections saw gross domestic product rising 1.8% this year, 1.7% in 2018 and 1.6% in 2019.
