ECB expects inflation close to 2% in 2017

The ECB's new inflation forecasts released yesterday showed that the ECB expects inflation to increase to below, but close to, 2% at the end of the forecast horizon, as it looks for inflation of 1.8% in 2017.
 
The increase is driven mainly by higher core inflation. Added to this, the ECB revised its inflation forecast higher for the first time in more than a year. 

In 2016, the ECB expects inflation of 1.5%, up from a forecast of 1.3% in the December staff projection. 

It is likely the revised inflation forecast reflects the new forecast including the additional impact of the non-standard monetary policy measures, which is not usually captured by the ECB's standard modelling framework.

Danske Bank notes in a report on Friday:

• We believe the ECB's high core inflation forecast is due mainly to a projected increase in wage growth over the forecast horizon.
• The ECB's forecast is above our forecast and in 2015-16 the ECB's core inflation projection is higher than our expectation.