Revising up our euro-zone inflation forecasts

As a result of the increase in gas prices, we now think that euro-zone headline inflation will soon hit 4% and that it will average 2% in 2022. But headline and core inflation still look set to fall over the course of next year, with both settling at uncomfortably low levels for the ECB.
Jack Allen-Reynolds Senior Europe Economist
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European Data Response

German Ifo Survey (October)

The fourth successive monthly fall in the Ifo Business Climate Index provides more evidence – if it were needed – that supply side disruption is causing the German economy to slow sharply and suggests that the problems are extending beyond manufacturing. We expect the economy to do no more than tread water in the last three months of the year.

25 October 2021

European Economics Update

Are consumer spending habits returning to normal?

We don’t have much timely official data on the detailed breakdown of consumption. But the available evidence shows a sharp (albeit uneven) increase in spending on services since the end of Q2. While spending in restaurants has risen above pre-pandemic levels, the tourism sector is still lagging behind.

22 October 2021

European Economics Weekly

A fresh start for the Bundesbank?

Other than Mr Weidmann’s abrupt departure from the Bundesbank, the news this week has been dominated by the twin problems of rising inflation and slowing economic growth. There is more bad news to come, including a further increase in inflation in October (data due next Friday). However, the ECB is sure to leave its policy unchanged at next Thursday’s monetary policy meeting and will reiterate its view that the inflationary pressures will be largely transitory. We agree with this, but there are growing risks that the increase in inflation will be larger and last longer than either we or the ECB are currently forecasting.

22 October 2021

More from Jack Allen-Reynolds

European Economics Weekly

Wage growth to stay weak, inflation to keep rising

Data published this week highlight the challenge to euro-zone consumers from subdued pay growth and rising inflation. We expect inflation to keep rising in the coming months, and probably further than most expect. Next week, we will host a Drop-in webinar on the causes and effects of the recent surge in European gas prices.

17 September 2021

European Data Response

Euro-zone Final HICP (Aug.)

Rising costs – from shipping to energy – are likely to push euro-zone inflation up even further in the coming months. They might also mean that it doesn’t fall quite as quickly next year as we currently assume. But by the end of 2022, we still suspect that inflation will be a long way below the ECB’s target.

17 September 2021

CE Spotlight

How long will pandemic price pressures last?

Global supply problems could put some further upward pressure on inflation in the near term, but the increase in inflation experienced in the immediate wake of the COVID crisis is close to peaking and we expect headline inflation to fall back in every major advanced economy in 2022. Underlying price pressures are likely to remain muted in Europe and Japan throughout this year and next. However, a combination of large amounts of fiscal and monetary support, and a longer-lasting drop in the labour force, means that core inflation in the US will remain well above target in 2022.

10 September 2021
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