Christine Lagarde_Presidenta del BCE_cabecera_02

ECB forecast inflation rates in the euro area will remain over the 3% for all the year 2022

Inflation increased further to 4.9% in November. It will remain above two per cent for most of 2022. Inflation is expected to remain elevated in the near term, but we expect it to decline in the course of next year, Christine Lagarde (President of the ECB) informed recently.
ECB staff new projections foresee annual inflation in Europe at 2.6% in 2021, 3.2% in 2022, 1.8% in 2023, and 1.8% in 2024. This forecast is significantly higher than in the previous projections in September, that expeted annual inflation at 2.2% in 2021, 1.7% in 2022 and 1.5% in 2023.

Inflation excluding food and energy is foreseen to average 1.4% in 2021, 1.9% in 2022, 1.7% in 2023, and 1.8% in 2024, also higher than in the September projections.
Increase in inflation primarily reflects a sharp rise in prices for fuel, gas and electricity
In November, energy inflation accounted for more than half of headline inflation, ECB says and remarks that demand also continues to outpace constrained supply in certain sectors.

The consequences are especially visible, informed Lagarde, in the prices of durable goods and those consumer services that have recently reopened. Base effects related to the end of the VAT cut in Germany are still contributing to higher inflation, but only until the end of the year.

Higher and early than expected rise in wages another risk for the recovery

“We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers become more confident and save less than expected.

By contrast, the recent worsening of the pandemic, including the spread of new variants, could be a more persistent drag on growth. The future path of energy prices and the pace at which supply bottlenecks are resolved are risks to the recovery and to the outlook for inflation.

If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher,” this was the risks picture described by Christine Lagarde for the euro area last 16th January.

Euro area economy keeps on recovering, despite de slowdown in the near term

Despite the risks the prospects of the ECB for the euro area remain hopeful.

“Summing up, the euro area economy continues to recover, despite a slowdown in the near term. The sharp increase in energy prices and demand outpacing constrained supply in some sectors are pushing up inflation, Lagarde explained.

“Inflation will remain above our target for most of 2022, but is likely to ease in the course of next year. At the same time, given the progress on economic recovery and towards our medium-term inflation target, we can discontinue net purchases under the PEPP in March. But monetary accommodation is still needed – including net purchases under the APP and our forward guidance on interest rates – for inflation to stabilise at our two per cent inflation target over the medium term,” She concluded.

Image over the headline.- Christine Lagarde (President of the ECB).© ECB

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