Since the euro was introduced a quarter century ago, inflation has averaged close to target, despite the recent surge

After years of planning, the Europe Union took a big step of economic integration by introducing its new currency, the euro, in 1999. Twenty-five years later, the euro is now the home currency of 350 million people in 20 countries.

The European Central Bank (ECB), tasked with maintaining price stability in the euro area, aims for 2 percent per annum for consumer price inflation over the medium term. (Before July 2021, the aim was to maintain an inflation rate below but close to 2 percent.) This PIIE Chart shows that, despite the surge of inflation of the past couple of years, the average euro area inflation over the last quarter century has been 2.1 percent per annum, which is not far off target.

But 25 years is not “the medium term.”

For lengthy subperiods, the ECB’s inflation record has been less successful. As the chart indicates, a multi-year streak of undershooting the 2 percent target from the end of 2013 (annual average inflation at just 0.7 percent) was followed by the current overshoot (annual average inflation since end-2020 has been 5.7 percent).

The ECB currently projects inflation falling to about 2 percent by 2025.