The Bank of Portugal lowered its inflation forecast in 2024 to 2.9%

The Bank of Portugal (BdP) is more optimistic about lower inflation in Portugal next year, now forecasting an inflation rate of 2.9%, according to forecasts published this Friday.

In its December economic bulletin, the institution headed by Mario Centeno forecast that inflation will maintain a downward trajectory, with the annual change in the Harmonized Index of Consumer Prices (IHPC) falling from 5.3% in 2023 to 2.9% in 2024 and 2% in 2025 and 2026.

In October, the central bank pointed to a rate of 5.4% this year, 3.6% in 2024 and 2.1% in 2025.

The decline in inflation is supported by lower “production costs – once adverse supply shocks have been removed – as well as effective monetary policy transmission,” the report explains.

Despite this, he notes that on a quarterly basis, “after reaching 2.6%” in the last three months of 2023, “inflation should temporarily post higher values ​​through 2024, approaching 2% in 2025.”

“The higher values ​​in 2024 are the result of a temporary impact on energy and food prices,” he elaborates.

In energy products, they reflect “the impact of expected increases in electricity prices at the start of the year and base effects on fuels, given that prices are not expected to fall as significantly in 2024 as was observed in 2024.” first half of 2023.”

On the other hand, he expects the rate of change in food prices to increase in January with the abolition of zero VAT.

Core inflation, which excludes energy and food, is expected to decline through 2024, reflecting the lagged effect of cost cuts and monetary tightening.

Like the European Central Bank (ECB) for the eurozone, the Bank of Portugal also forecasts headline inflation to represent “values ​​in line” with its 2% target in 2025.