After the 2022 peak, inflation will decline over the forecast horizon, says the EU Commission. “Three consecutive months of moderation in headline inflation means that the peak is now behind us, as anticipated in the autumn forecast” reads the winter economic forecast. After reaching an all-time high of 10.6% in October, inflation eased and the January flash estimate fell to 8.5% in the euro area. The decline was mainly driven by the decrease in energy inflation, while core inflation has not yet reached its peak.
Inflation forecasts have been revised downwards slightly since the autumn, mainly reflecting developments in the energy market. Global inflation is expected to fall from 9.2% in 2022 to 6.4% in 2023 and 2.8% in 2024 in the EU. In the euro area, a deceleration is expected from 8.4% in 2022 to 5.6% in 2023 and 2.5% in 2024. “Although forecast uncertainty remains high, the risks to growth they are basically balanced. Domestic demand could turn out higher than expected if the recent falls in wholesale gas prices are transmitted more strongly to consumer prices and if consumption proves more resilient. However, a potential reversal of the decline cannot be ruled out in the context of ongoing geopolitical tensions. External demand could also turn out to be more robust after China reopens, which however could fuel global inflation. “The risks to inflation remain largely related to developments in energy markets, mirroring some of the identified risks to growth. Especially in 2024, upside risks to inflation prevail, as price pressures could turn out to be larger and more entrenched than expected if wage growth settles at above-average rates for an extended period.