The European Central Bank expects inflation to show “further moderation, reaching levels close to target during 2025”, but also that it “is expected to show some volatility in the remainder of 2024, due to base effects and material price increases energy commodities”.
In the medium term, however, the institution notes in its latest Economic Bulletin, the energy goods component “should settle at moderate positive values”. Meanwhile, food inflation “has decreased significantly in recent quarters, in a context in which inflationary pressures have attenuated as raw material prices have fallen”.
In the forecast, updated at the beginning of the month by the institution’s technicians, “a central element is expectation of a gradual decline in nominal wage growth, from initial levels that are still high, as the upward effects of the pressures induced by the compensation of inflation in a labor market characterized by tense conditions disappear”.
“The expected recovery in productivity growth – we read – should support the moderation of pressures on the labor cost side”. And “the profit dynamics should weaken and partially attenuate the transmission of labor costs to prices, especially in 2024”.
Looking at the risk balance“inflation could be at higher levels than anticipated if wages or profits rose more than expected. Upside risks also come from increased geopolitical tensions, which could lead to an increase in energy and transport costs. On the contrary – concludes the ECB – inflation could surprise downwards if monetary policy slows down demand more than expected or in the event of an unexpected deterioration of the economic context”.
