The European Central Bank (ECB) expects Eurozone inflation to hit its 2% target by the end of 2025, according to Joachim Nagel, a member of the ECB Governing Council and president of Bundesbank.
Speaking in an interview with the BBC on Wednesday, he said that the central bank remains confident despite ongoing economic uncertainties. “We will achieve price stability this year,” Nagel said. “We are back to our target at the end of this year—this is good news.”
The ECB’s latest projections, released last week, initially suggested inflation would reach 2% in early 2026, though they were made before a recent drop in energy prices, meaning the timeline may change sooner than expected.
Global trade uncertainty messes with ECB’s inflation outlook
While the inflation slowdown is encouraging, Nagel warned that Germany’s economy is at risk due to its heavy reliance on exports.
He pointed directly at Donald Trump’s trade policies, saying, “When you are exposed to an export-oriented model, then you are more exposed in a situation when tariffs are going up and there are so many uncertainties, so many unknowns.”
Germany, which depends on trade with the US, could face serious economic consequences if Trump imposes new tariffs on European goods. Nagel reportedly told BBC these policies might even lead to a recession this year, though he did not speculate on specific sectors that would be affected the most.
Beyond the trade concerns, Nagel also addressed Europe’s push for military and infrastructure spending, urging leaders to take advantage of the opportunity. “Now is this window of opportunity to do more in Europe, we should have more Europe and not less Europe,” Nagel said in the Wednesday interview.
While much of the discussion around spending increases has focused on defense, Nagel thinks the Eurozone should go beyond just military funding.
Another ECB Governing Council member, Martins Kazaks, took a similar approach when asked about inflation concerns. He avoided making predictions about interest rate policy, citing uncertainty in global markets.
“At the current moment, it’s not really possible to very clearly say what the future dynamic of rates will be,” Kazaks told TV24 on Thursday. Kazaks then pointed to Trump’s potential tariff war as one of the biggest wildcards, saying it could increase certain prices across Europe.
Eurozone inflation slowed in February, but risks remain
The latest Eurostat data, released on March 3, showed that Eurozone inflation dropped to 2.4% in February, but it still came in slightly above expectations. Analysts surveyed by Reuters had predicted inflation to fall to 2.3%, following the 2.5% reading in January.
Core inflation, which excludes volatile sectors like energy, food, alcohol, and tobacco, edged down to 2.6% in February from 2.7% in January. Services inflation, which has remained stubbornly high, declined to 3.7%, down from 3.9% in December 2024.
A major reason for the overall inflation slowdown was the huge drop in energy price increases. In February, energy prices were up only 0.2%, compared to a 1.9% increase in January, and the ECB’s governing council believes this played a key role in easing overall inflation pressures.
Economist Jack Allen-Reynolds said that February’s numbers indicate a downward trend in services inflation, which could help lower core inflation in the months ahead.
“February’s decline in headline inflation was encouraging because it was partly due to lower services inflation,” Allen-Reynolds said on Thursday. “We think February’s decline in services inflation is the start of a trend that will pull the core rate down substantially this year.”
Despite these, Bert Colijn, another economist, pointed out that inflation remains highly uncertain due to trade tensions and energy market fluctuations.
“Geopolitical developments are making the inflation outlook highly uncertain at the moment. Think, for example, of uncertainty surrounding a trade war and energy prices,” said Colijn in a note on Wednesday.
“For the European Central Bank, the big question is how low it will go,” Colijn said. He added that while the March 3 inflation data confirms that inflation is cooling, it does not provide a strong case for setting a definitive terminal rate.
“We expect another 0.25ppt cut later this week to be accompanied by a fiercer debate on when the ECB will reach its terminal rate,” said Colijn.
While inflation has moderated across the Eurozone, some countries continue to report higher-than-expected readings. In Germany, February inflation remained at 2.8%, unchanged from the previous month, while in France, inflation dropped sharply to 0.9%.
Cryptopolitan Academy: Coming Soon – A New Way to Earn Passive Income with DeFi in 2025. Learn More
News – Cryptopolitan – Read More