BNP Paribas analysts argue that weaker demand in the Eurozone compared to 2022 is helping to contain inflation, even as supply constraints remain above historical averages. They note that survey data show demand constraints dominating since mid‑2024, allowing inflation to return to the European Central Bank’s (ECB) 2% target, though recent energy shocks and rising input prices could later lift core inflation.
Weaker demand tempers inflation risks
“In the Eurozone, weaker demand has resulted in a more pronounced decline in inflation, unlike in the United States, where both demand and inflation have remained more sustained.”
“The lack of demand has exerted a greater influence than supply since mid-2024, while supply-side constraints have continued to ease.”
“This trend has allowed inflation to return to the ECB’s 2% target.”
“However, it has not fallen below this target, as supply constraints, despite their reduction, remain significantly higher than the historical average.”
“Furthermore, while harmonised inflation rose by 0.6 percentage points to 2.5% year-on-year in March (at this stage, only due to the rise in fuel prices), the conflict in Iran could well trigger a resurgence of these constraints, as indicated by the rise in input price indices in business climate surveys.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/eurozone-weak-demand-offsets-supply-constraints-bnp-paribas-202604081449
