rate euro zone inflation in the coming months Sharper slowdown than expected with the tightening of monetary policy in response to a number of factors, such as falling energy prices and easing supply chain problems. European Central Bank (ECB), according to the governor of the Bank of Spain, Pablo Hernandez de Cos.
“The latest data on inflation and some of its key determinants in the euro area are somewhat encouraging, but the overall situation still calls for caution,” the Spanish central banker said before the Alianza por Iberoamérica-CEAPI Business Council.
In this context, he emphasized at the meeting held in February: ECB Governing Council taken into account slowdown in price increases, Along with the sharp fall in gas prices, easing cuts in the global supply chain, the appreciation of the euro and tightening financing conditions, he pointed out that “in the coming months, inflation is falling more strongly than planned in December.
Core inflation
However, historical evidence suggests that even if gas prices in Ukraine have returned to near pre-war levels, Upside effects on core inflation could still be significant short term.
Likewise, he argued that fiscal measures implemented by governments to reduce the impact of inflation “would have compensatory effects when withdrawn” and that this could make the inflationary period more permanent, which explains why the ECB revised its estimates. The 2024 inflation forecast for the euro area is set at 3.4%.
However, De Cos argues that some of these measures are in the form of price ceilings and therefore their effects depend on the magnitude of increases in the cost of energy, so in the context of lower energy prices, ceiling price may not applyThe downside effect of these measures will therefore be less in 2023 and then the upside impact of their reversal in 2024 will also be less.
On the other hand, the head of the Bank of Spain drew attention to the effect of the euro exchange rate on inflation. In the first half of 2022, it contributed to the rise in prices due to its weakness against the dollar.In the second half and first months of 2023, this trend reversed.
worker wages
Regarding wages, the economist warned that pressure to regain lost purchasing power for workers could be significant, especially as the next wage negotiations will take place in the context of a tight labor market where unemployment remains at a record low of 6.6%. The range and the degree of labor shortage perceived by companies have also stabilized at historically very high levels.
“Therefore, we must monitor the progress of wages and “Margins to determine the likely outlook for runoff effects on inflation,” he said.
Likewise, for De Cos, the reopening of the Chinese economy poses challenges for the evolution of inflation due to the Asian giant’s greater consumption, but it has also shown that it can more quickly alleviate problems in the supply chain.
In any case, the Governor of the Bank of Spain reminded that he reached an agreement at the February meeting of the ECB Governing Council, of which he is a part. raise interest rates by 50 basis points and predicted a similar increase for March, when the agency will review available data to evaluate its alternatives.
In this sense, the Spanish economist stressed at its March meeting that the ECB will have a new round of macroeconomic forecasting, including a comprehensive reassessment of the inflation outlook for the eurozone, so most will be in a better position to judge. the appropriate way consistent with a data-driven approach.