A man works at the Amur Gas Processing Plant in Russia. Covering an area of 800ha, it has an estimated annual capacity of 42 billion cbm of natural gas.
Yuri Smityuk | TASS | beautiful pictures
The European Commission on Thursday raised its inflation expectations for this year, but still expects prices to move below European Central Bank2% target by 2023.
The Brussels-based organization said inflation will hit 3.5% this year compared with a November forecast of 2.2%.
The inflation debate in the 19-member bloc is raging. On the other hand, some believe that the current inflationary pressure will ease and loose monetary policy is necessary. Others objected that the ECB needed to tighten monetary policy after a row monthly historical high in inflation.
Bundesbank Governor Joachim Nagel became the second central banker in the past few days to say the ECB could raise interest rates later this year.
However, the European Commission, the EU’s executive body, said on Thursday that inflationary pressures are likely to ease next year.
“After hitting a record 4.6% in the fourth quarter of last year, inflation in the euro area is expected to peak at 4.8% in the first quarter of 2022 and remain above 3% through the third quarter. of the year,” the committee said in a statement.
“As pressure from supply constraints and high energy prices subside, inflation is expected to slow to 2.1% in the final quarter of the year, before falling below the Bank of China’s 2% target. central Europe throughout 2023,” the organization added.
As a result, the committee estimates that annual inflation in the euro area will rise from 2.6% in 2021 to 3.5% in 2022, before falling to 1.7% in 2023.
However, these numbers indicate a upward revision in ECB’s own inflation forecast at the next meeting in March.
Market participants will be watching the meeting closely to understand whether the ECB will cut its bond-buying program or tweak any other provisions of its policy. Whatever the central bank decides to do could have a major impact on the recovery of eurozone economies, some of which have been particularly affected by the pandemic.
High uncertainty
The outlook for inflation, as well as for the overall economy in Europe, also depends on tensions between Ukraine and Russia.
“Risks to the growth and inflation outlook are markedly exacerbated by geopolitical tensions in Eastern Europe,” the committee said in a statement.
Speaking to CNBC last month, Eurogroup President Paschal Donohoe also warned that these geopolitical risks could have a significant economic impact.
Europe is heavily dependent on natural gas from Russia, some of which comes via pipelines in Ukraine. Any escalation could impact the normal flow of gas and drive up costs, driving inflation even higher.
