According to economists surveyed by Lusa, the peak of inflation should already be reached, and in 2023 there will be an easing of inflationary pressures, exacerbated by a slowdown in economic growth.
The risk of higher-than-expected inflation has not disappeared, not least because first the pandemic and then the war taught the lesson that uncertainty is confidence in macroeconomic forecasts, but the evidence to date leads economists to believe that Inflation in Portugal will enter a downward trajectory, both in the euro area and in the US.
Filipe Garcia, President of the IMF’s Financial Markets Information Unit, believes that “inflation as a major movement will peak in early autumn” and is “confident” that it will decline in 2023 in Portugal and the euro area and “tend to move towards a certain normality.
While he acknowledges that “the rate of decline is likely to be slower than we would all like,” for an economist, the evolution of inflation will largely depend on the economic slowdown that occurs in 2023, with a possible eurozone recession higher.
An opinion shared by Paulo Rosa, an economist at Banco Carregosa, who believes that “YoY inflation is likely to peak this quarter and is still suffering from base effects.”
“As the economy slows, inflation is expected to slow in 2023. Unless the war in Ukraine escalates significantly, going beyond the borders of the occupied country, or an unpredictable event similar to a black swan happens next year,” he justifies.
The belief that 2023 could be the start of a sustained downward trend in inflation is supported by data such as data released by the National Statistical Institute (INE) on Friday.
If it is true that inflation began to rise in 2021, due to the post-pandemic and difficulties in global supply chains, then it is also true that 2022 was the year of growth in this indicator, which sounded the alarm and forced central banks and national governments to act.
A quick INE estimate indicates an average rate of change for the consumer price index (CPI) of 7.8% in 2022 (preliminary data), the fastest in three decades, when it hit 9.56% in 1992.
However, INE indicates that the year-on-year inflation rate fell again in December for the second straight month to 9.6% this month, after falling slightly to 9.9% in November. Effect.
“This happened to a certain extent with the reduction in fuel prices, which is very important in Portugal,” emphasizes Filipe Garcia.
The downward trend highlighted by Paulo Rosa is being felt across several countries in the European Union: “Cost pressures have eased mainly due to falling energy prices as well as declining supply chain pressures. The price of oil is already below the level of the beginning of the war in Ukraine,” he explains.
This scenario is linked to developments in the United States, a country that is also experiencing a slowdown in inflation, as pointed out by Miguel Faria and Castro, an economist at the Federal Reserve Bank of St. Louis. Louis reminds that this also affects Europe through imported inflation.
“The latest data [nos Estados Unidos] promising. One of the reasons I think this will put an end to inflation is because we are seeing a very rapid decline in real estate in the US. Prices are not rising as much, and case sales in the US are declining,” he notes.
The Portuguese government, which forecasts a harmonized consumer price index (HICP) of 4% in 2023, remains cautious, with Finance Minister Fernando Medina saying on Friday that the data still does not show that the peak has already been reached and we are already in a “regression process” but “these are encouraging signs.”
Still, economists say the financial estimate is plausible: “I wouldn’t be surprised if we can close next year with year-end inflation of around 3.5% or 4% and average inflation of 5.5% or 6%. That is, still high, but slowing down,” notes Filipe Garcia.
Portugal’s lowest inflation projections for 2023 show that it is not as entrenched and widespread as in Europe because it has also not been as dependent on Russian natural gas as, for example, Germany or Italy, adds Paulo Rosa, arguing that “any improvement in inflation in the European Union and a slowdown in commodity prices will bring inflation in Portugal to below 4% by the end of 2023.”
The economist recalls that “part of the products imported by Portugal from Europe, mainly fossil fuels, industrial metals and agricultural products, originate outside Europe and are most often quoted in dollars, which accelerated the growth of European inflation in the first nine months.”
“Since the beginning of October, the strengthening of the euro against the dollar by about 12% has contributed to the slowdown in imported inflation,” he notes.
If higher-than-expected inflation is possible in 2023, Paulo Rosa warns, this will lead to “an even greater reduction in the disposable income of families, contributing to an even more pronounced slowdown in Portugal’s economic growth in 2023 and increasing the likelihood of a recession.” .
The Bank of Portugal and the European Commission forecast HICP to fall to 5.8% in 2023, while the Organization for Economic Co-operation and Development (OECD) estimates 6.6% and the Public Finance Council (CFP) and the International Monetary Fund point up to 5.1% and 4.7% respectively.
Author: Portuguese
Source: CM Jornal
I’m Tifany Hawkins, a professional journalist with years of experience in news reporting. I currently work for a prominent news website and write articles for 24NewsReporters as an author. My primary focus is on economy-related stories, though I am also experienced in several other areas of journalism.