ECB experts conduct major upward revision of inflation estimates

The ECB’s experts have made a major overhaul of inflation estimates over the next three years.

According to the European Central Bank’s quarterly business survey, experts expect inflation to reach 3% in 2022, 1.8% in 2023 and 1.9% in 2024.

This is a significant revision, of the order of 1.1% for the inflation of 2022 and by 0.1% for 2023, in relation to the estimates given in the fourth quarter of 2021.

Respondents attributed the upward revisions mainly to the further increase in energy prices and the continuing effect of supply-demand imbalances.

At the same time, they continue to expect inflation to fall to 1.8% by December 2022.

In terms of GDP, expectations remained largely unchanged, and continue to suggest that economic activity exceeded the pre-pandemic level (fourth quarter of 2019) in the fourth quarter of 2021.

They expect that the level of GDP will increase above the percentage expected before the pandemic, in 2023 (compared to 2024 which were the previous estimates).

Eurozone companies also expect wages to rise by 3% or more this year as workers demand compensation for high inflation, making it even harder to find staff such as software makers and engineers. the ECB.

Wage growth is a crucial indicator for the ECB in assessing the future course of inflation and setting the time for the first rate hike in a decade.

The ECB spoke to 74 large eurozone companies outside the financial sector in mid-January, noting that labor market conditions are tightening and wages are rising or will rise, after a near-freeze over the past two years.

“Usually, my contacts tell me that they expected average wage increases from just 2% in the recent past to 3% or more this year,” the ECB said in a statement.

“Significantly higher wage inflation rates were described or expected in relation to these jobs, which challenged the recruitment and retention of staff, for example in the construction and road transport sectors, and to technology and software experts.” .

The companies told the ECB that demand was strong or growing, but was difficult to meet due to supply constraints, a side effect of measures designed to combat the coronavirus pandemic.

Nearly half of businesses reported an increase in activity in the last quarter of last year, a smaller percentage than the previous survey three months ago.

In terms of prices, the percentage of companies that recorded an increase, decreased but remained higher than half of the total.

“Many contacts have stressed that prices have been adjusted more frequently than in the past to avoid shrinking margins and that prices will continue to rise for most of 2022,” the ECB said.