Euro-area inflation is expected to ease sharply in 2023 as energy costs stabilize and the supply chain constraints contributing to soaring prices wane.
- The European Union’s executive forecasts inflation averaging around 1.4% the following year, just below the European Central Bank’s 2% target.
- Energy costs might peak in the upcoming months and wage growth will remain subdued due to excess capacity in the labor market.
- On Thursday, the European Commission stated that the current elevated price pressures are expected to be largely transitory.
- The EU further stated that inflation may be higher than anticipated if supply constraints are more persistent and above-productivity wage hikes are passed on to consumer prices.
The forecasts support arguments by ECB policymakers including President Lagarde that soaring prices will cool down next year and do not warrant elevated interest rates.
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Source: Bloomberg.
