Europe | Inflation’s soft landing amid turbulence

Summary

Europe has managed to bring inflation back to the ECB’s target without triggering a recession, although the challenge now is to keep it there in an environment that is more exposed to global shocks.

Key points

• Key points:
• Recent disinflation has been supported by external factors, such as energy prices and cheap imports, which currently act as a buffer but whose contribution is not guaranteed going forward.
• The inflation that remains is increasingly domestic in nature, concentrated in services, with still-dynamic wage growth and weak productivity, which helps explain the ECB’s cautious stance.
• The use of tariff threats as a geostrategic tool, and a potential European response, could reignite inflationary pressures.
• Monetary policy is returning to a more conventional demand-management framework, but within a context of more volatile global risks.

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