Inflation in the eurozone and Portugal is expected to continue falling next year as central banks, families and companies grapple with rising prices, according to economists consulted by Lusa.
After several years of very low inflation, the economic recovery from the pandemic and rising energy prices were the first alarm bells in the final stage of 2021.
This phenomenon worsened throughout 2022, leading the European Central Bank (ECB) to raise interest rates for the first time in 11 years in July of that year, with the aim of returning inflation to its 2% target.
Although the war in Ukraine shows no signs of ending, its impact on energy and food supplies has softened, and during 2022 the first signs began to emerge that inflation may be on the decline, which economists say should be confirmed as sustainable in 2024 .
“The rate of decline in inflation that we have seen since the summer is unlikely to be repeated due to base effects. For 2024, there are three important aspects that contribute to reducing inflation: monetary policy is restrictive, the evolution of energy and other commodity prices is slow. encouraging, and we are facing a slowdown in activity,” explains the IMF President – Financial Markets Update.
However, the economist notes that “2024 shouldn’t be that bad for consumption as we’ll see interest rates and inflation fall and wages rebound.”
“There will likely be an increase in disposable income in many cases compared to 2023, which should support consumption and prevent inflation from falling too sharply. Commodity prices should rise little or not at all, as long as unemployment does not increase. , prices for services must continue to be supported,” he says.
The economist points to a range of non-harmonized average inflation between 1.8% and 2.3% in Portugal in 2024, believing that due to the ECB’s rate forecast of 2.7% in 2024, it will be revised downwards during the year . year, year.
Banco Carregosa senior economist Paulo Rosa also predicts that “it is very likely that inflation will continue to slow in 2024, and a period of deflation cannot be ruled out if the Portuguese and eurozone economies enter recession.”
Eurozone annual inflation fell to 2.4% in November, according to preliminary Eurostat estimates.
This value, the lowest since July 2021 (2.2%), compares with 2.9% recorded in October and 10.1% in November 2022, as measured by the Harmonized Index of Consumer Prices (HICP).
ISEG Professor António Ascensan Costa believes that “the recent fall in inflation, faster than expected, is the result of the resolution of supply problems that were the cause of the initial inflationary surge.”
“Without escalating geopolitical tensions, with unpredictable impacts on global supplies of some raw materials or even specialty goods, the evolution of inflation should continue downward,” the economist predicts about developments next year.
The scenario is also conceded by the director of the Competitiveness Forum’s research office, Pedro Braz Teixeira, who notes that “if the war in the Middle East remains contained, inflation is expected to continue its downward trajectory.”
Despite the relative optimism, ECB policymakers stressed it was not yet possible to “declare victory” over inflation, warning that reaching the 2% target could take some time.
ECB President Christine Lagarde has repeatedly called for caution in raising wages, warning that inflation is now driven by domestic rather than external sources.
“However, wage pressure remains strong. Our current assessment is that this primarily reflects catch-up effects associated with past inflation rather than self-fulfilling dynamics. And we expect wages to continue to be the key factor driving domestic inflation,” he said.
NECEP-Lisbon Forecasting Laboratory coordinator João Borges de Assunção believes that “there is a risk that wage growth above” the 2% target between 2022 and 2024 could hamper the ECB’s work.
In its latest forecast in October, NECEP pointed to a central point for inflation in the eurozone in 2024 of between 3% and 5%, and slightly lower in Portugal, between 2.5% and 4.5%.
“However, inflation data for October and November came out quite good, which makes the values at the lower end of the forecast ranges more reliable,” he explains.
According to the economist, “the evolution of interest rates is now more uncertain” as “those who argue that rising interest rates were enough to fight inflation now have a case” but “those who fear that rising wages will affect the constant raising prices, especially for services, also has arguments.”
“The ECB will likely want to see many months of monthly inflation, stripped of volatile components, corresponding to annual inflation of 2% before considering this episode of inflation between 2021 and 2023 to be resolved,” he concludes.
Author: Lusa
Source: CM Jornal
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