Inflation remains high in the short term but slows down in 2022

Inflation “will remain above 2% for most of 2022” and, according to expectations, “should remain at high levels in the short term, but decline over the course of the year”, writes the ECB in the monthly bulletin.
Eurotower states that “the future evolution of energy prices and the time to resolve supply-side bottlenecks pose risks to the recovery and inflation outlook. If price pressures translate into wage increases greater than anticipated or if the economy returns more quickly to full productive capacity, inflation could be at higher levels “.

Price increases from energy

The rise in inflation, explains the central institute, “mainly reflects the sharp rise in the price of fuel, gas and electricity. More than half of the total inflation recorded in November is attributable to the energy component. supply that, in some sectors, is limited. The consequences are particularly evident in the prices of durable goods and consumer services that have benefited from the recent reopening. The base effects of the elimination of the VAT reduction in Germany continue to contribute to higher inflation, but only until the end of 2021. There is uncertainty about the time needed to resolve these aspects “.

Price pressures will ease over the year

According to the ECB, in the course of 2022, however, “energy prices should stabilize, consumption trends should normalize and price pressures resulting from global supply-side bottlenecks will ease. Over time, the gradual return. of the economy to full utilization of productive capacity and further improvements in the labor market should support faster wage growth “.

Measures of longer-term inflation expectations derived from markets and surveys have remained broadly stable since the October monetary policy meeting, while overall approaching 2% in recent months. These factors, the report reads, “will contribute to the rise in core inflation and to the increase in overall inflation up to the target set by the ECB of 2% in the medium term”.

Declining annual rate in 2023

The macroeconomic projections formulated by Eurosystem experts in December 2021 indicate an annual inflation rate of 2.6% in 2021, 3.2% in 2022 and 1.8% in both 2023 and 2024, significantly at the above that indicated in the September financial year. Higher levels compared to the September projections were also forecast for inflation net of the energy and food component, which on average would reach 1.4% in 2021, 1.9% in 2022, 1.7. % in 2023 and 1.8% in 2024.

View from Italy

“Businesses have reviewed the price lists were significantly up in the last quarter of 2021 and their expectations on consumer inflation have risen well beyond the 2 per cent threshold on all forecast horizons (12-month expectations have reached 3.2 per cent) “. survey conducted between 23 November and 15 December 2021.
“The recent rise in energy costs and difficulties in supply chains would lead to an increase in their sales prices in the next 12 months”, explains Bankitalia.

By Editor

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