ECB Projects Return to 2% Inflation by 2028

The European Central Bank (ECB) has determined that it is difficult to classify the Eurozone economy as experiencing stagflation. Although there are simultaneous signs of slowing growth and inflationary pressures from energy prices, the likelihood of a recession remains low, and long-term inflation expectations are hovering around 2%. In the minutes from the monetary policy meeting held on June 10-11, the ECB projected that the Eurozone growth rate would gradually increase. The real GDP growth rates were forecasted to be 0.8% in 2026, 1.2% in 2027, and 1.5% in 2028. The inflation outlook, based on the HICP, is expected to be 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. Energy prices have a significant impact on inflation, and the energy shock caused by the Middle East conflict is contributing to rising prices. The ECB assessed that the transmission of inflation shocks to wages and long-term inflation expectations is limited. The wage growth rate for the first quarter of 2026 has decreased to 2.5%. On June 11, the ECB raised the benchmark interest rate by 25 basis points, adjusting the deposit rate to 2.25%. According to Reuters, inflation expectations in the ECB's expert forecast survey have remained unchanged over the past three months, maintaining the trajectory for a return to 2% by 2028.