The Bank of Portugal (BdP) today revised down its inflation rate for this year to 5.5%, above the government’s forecast of 4%, warning of accelerating food prices.
In the March Economic Bulletin published today, the institution led by Mario Centeno predicts that the Harmonized Consumer Price Index (HICP) will fall from 8.1% in 2022 to 5.5% in 2023, fall to 3.2% in 2024 year and up to 2.1% in 2024. 2025.
This scenario is compared to inflation expected in December of 5.8% this year and 3.3% in 2024, and management’s forecast of 4% this year.
BdP forecasts IPHC excluding energy products to hit 6.7% this year, 3.2% in 2024 and 2.4% in 2025.
The watchdog explains that “in the coming quarters, the decline in inflation will be mainly based on changes in energy and food prices, but its extent is unclear.”
It also states that “price containment for other goods and services will be slower due to the lagging impact of energy prices, profit margin recovery and wage growth.”
“The continuation of strong price growth in the euro area, especially for components with less volatile prices, fuels expectations for a more restrictive monetary policy over the forecast horizon,” he says.
However, the BdP warns that “despite headline inflation declining, the year-on-year rate of change in food prices continued to rise, standing at 19.0% in February 2023.”
It shows that by component, the year-on-year price change for unprocessed food products was 21.8%, and for processed food products – 17.9%, peaking in both cases.
The banking regulator is pointing to a slowdown in gross domestic product (GDP) growth from 6.7% in 2022 to 1.8% this year, with growth of 2% in 2024 and 2025.
The BdP outlook for this year has been revised upwards from the December report, when it indicated growth of 1.5%, and also above the government’s forecast of 1.3%, which could be updated in the stability report in April.
The institution, led by Mario Centeno, points out that economic activity should accelerate throughout the year and that there has been a decline in the cost of energy raw materials since the end of 2022, helping to improve the economy’s terms of trade and reduce external pressure on consumer prices.
BdP maintained its forecast for 2024 and clarifies that the growth forecast is based on the expectation of reduced uncertainty, greater growth in real household incomes and European funds.
However, he points out that “this will be driven by a tighter financial environment.”
The bank predicts that investment and exports will resume pre-pandemic growth, increasing their weight in GDP and contributing to the robust growth of the Portuguese economy.
Among the main components, the regulator predicts an increase in private consumption by 0.3% this year and 1% in 2024 and investment by 2.3% in 2023 and 5.2% in 2024.
BdP points to export growth of 4.7% this year and 3.7% in 2024, and imports of 2.4% and 3.4%.
The labor market remains robust over the forecast horizon, forecasting the unemployment rate to rise to 7% in 2023, close to what was seen in 2018-2019), reflecting “recent developments and the delayed impact of a slowdown in activity during 2022″, and in 2024-2025. the unemployment rate is declining, amounting to 6.7% at the end of the horizon.
BdP lists among the main risks for its activity “the impact of the normalization of monetary policy, increased friction in the financial markets and the escalation of the conflict in Ukraine.”