A key market gauge of eurozone inflation expectations rose on Friday to 2%, the European Central Bank‘s (ECB) inflation target for the first time in seven years, putting pressure on the central bank as it weighs how to proceed with stimulus when its pandemic-era support ends, according to Reuters.
The five-year, five-year forward inflation swap, a key market gauge of long-term eurozone inflation expectations, jumped four basis points on Friday to hit its highest since September 2014 at 2.0029%.
Growth in eurozone business activity slowed this month as firms face soaring costs due to supply-chain constraints, while the bloc’s dominant service industry struggled amid ongoing COVID-19 concerns, a survey showed on Friday.
Eurozone inflation hit a 13-year high in September and the move in the bond market inflation expectations gauge is a focal point for the European Central Bank, which closely tracks it.
After undershooting its inflation target of „close to, but below 2%” for years, the ECB adopted a 2%, symmetrical inflation target in July that will make undershoots and overshoots equally undesirable.
The five-year, five-year breakeven inflation forward has risen from just under 1.30% at the start of the year, driven by the economic recovery from the COVID-19 pandemic and elevated inflation readings spurred by supply bottlenecks and high energy prices.