ROMA ITALPRESS) – The conflict in the Middle East and the recent developments in the war waged by Russia against Ukraine have resulted in a further increase in the energy price profile. This is likely to maintain overall inflation well above the target until the first half of 2027. This is what the ECB points out in the Economic Bulletin, which accompanies and explains the framework at the basis of the Governing Council Decision of 10 September. The prospects are very uncertain, with risk of rising inflation and downwards for economic growth. With regard to energy shock, the new scenarios developed by experts illustrate the wide variety of trends that growth and inflation would affect the changing hypotheses on intensity and duration of shock, as well as its indirect and second impact effects. Subsequently, the energy component should mark a decrease and remain negative until the middle of 2028, causing a drop in overall inflation. Energy is expected to gradually transfer to the component of food and to the bottom one.
The improvement of economic prospects should also contribute to a slight increase in underlying inflation, which would continue to grow until the beginning of 2027 and would remain high for the rest of the year, then reducing in 2028. Overall inflation is expected to be around the target at the end of 2027, favoured by the effects of higher interest rates. The Governing Council will continue to closely monitor the extent and persistence of energy recovery, as well as the way in which they are transmitted to price and wage formation, inflation expectations and overall economic dynamics. The Governing Council therefore undertakes to define monetary policy in order to ensure that inflation is based on the objective of 2% in the medium term. The decisions of the Governing Council on interest rates will be based on the assessment of the prospects for inflation and associated risks, considered the new economic and financial data, as well as the dynamics of underlying inflation and the intensity of the transmission of monetary policy.
– photo IPA Agency –
(ITALPRESS).
