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EU sees Euro-Area inflation below the ECB’s target in 2023
economy

EU sees Euro-Area inflation below the ECB’s target in 2023

11.11.2021 From our online archive
Projections reinforce arguments by ECB officials that surging prices will ease next year and don’t warrant higher interest rates
The European Central Bank in Frankfurt, Germany
The European Central Bank in Frankfurt, Germany
Photo credit: AFP

Euro-area inflation will slow sharply in 2023 as energy costs stabilise and the supply-chain disruptions that are currently stoking prices fade, according to the European Commission

While boosting the outlook for prices in 2021 and 2022, the European Union’s executive sees inflation averaging just 1.4% the following year -- below the European Central Bank’s 2% target. Energy costs should peak in the coming months and wage growth is set to remain subdued because of excess capacity in the labour market, it said.

“Being to a large extent linked to the post-pandemic re-opening and ensuing economic adjustment, the current elevated price pressures are still expected to be largely transitory,” the commission said Thursday.

“Inflation may turn out higher than forecast if supply constraints are more persistent and above-productivity wage increases are passed on to consumer prices.”

The projections reinforce arguments by ECB officials including President Christine Lagarde that surging prices will ease next year and don’t warrant higher interest rates. Even so, inflation in the 19-nation euro region is the fastest since 2008, complicating the exit from extraordinary stimulus measures unleashed after Covid-19 struck.

The ECB plans to decide on the future of its asset-purchase program in December, when it will update its own economic forecasts. A medium-term inflation outlook below the 2% target would suggest a continuation of loose monetary policy even after its €1.85 trillion pandemic bond-buying program expires at the end of March.

Amid the elevated inflation, the commission sees gross domestic product in the euro area expanding 5% this year, 4.3% in 2022 and 2.4% in 2023. That’s an upgrade of 0.2 percentage points for 2021 and a downgrade by the same amount for 2022. 

Among other threats to the recovery, the commission lists a new spike in Covid-19 cases -- especially where vaccination rates are low -- and the supply-chain bottlenecks that are holding back manufacturers. 

“The European economy is moving from recovery to expansion but is now facing some headwinds,” Paolo Gentiloni, the EU commissioner for the economy, said in a statement. “We must remain vigilant and act as needed to ensure these headwinds do not blow the recovery off course.”

©2021 Bloomberg L.P.


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