European Commission predicts fall in inflation, but warns of loss of income

The European Commission this Monday revised down its forecast for eurozone inflation this year to 5.6%, saying tight monetary policy was “working” but warned of revenue losses and downgraded its forecast for 2024.

“More restrictive monetary policy could have a greater impact on economic activity. […] monetary policy is working as intended, as evidenced by the continued sharp slowdown in private sector credit flows, [mas] Its negative impact on domestic demand will increase if it is accompanied by a deterioration in household and corporate incomes, which in turn will affect economic sentiment and the ability of banks to finance growth,” says the community leader.

In its summer economic forecasts published this Monday, in a scenario of timid economic growth and weak consumption amid a slower decline in inflation and tight monetary policy, the European Commission forecasts inflation at 5.6% this year and 2.9% in 2024 year. eurozone, whose percentages compare with 5.8% and 2.8% in previous forecasts published in May last year.

In the EU as a whole, inflation is expected to be 6.5% this year and 3.2% in 2024, up from previous forecasts of 6.7% and 3.1%.

The institute adds that measures taken, such as raising interest rates, could “lead to a faster fall in inflation than expected, accelerating the recovery in real incomes.”

However, according to Brussels, “changes in inflation may be unexpected, either downward or upward” as weakening domestic demand could cause it to be “less resilient than expected” but could also lead to higher wages, leading to “stronger monetary growth.” a policy reaction that has negative consequences for economic growth.”