The European Commission on Thursday raised its inflation expectations for this year, but is still expecting prices to move below the European Central Bank’s target of 2% in 2023, according to CNBC.
The Brussels-based institution said inflation will hit 3.5% this year from a November forecast of 2.2%.
The debate over inflation in the 19-member bloc is fierce. On the one hand, some argue that current inflationary pressures will ease and a degree of loose monetary policy is needed. Others counter that the ECB needs to tighten monetary policy after consecutive historic monthly highs in inflation.
The European Commission said that inflationary pressures are likely to come down next year. It estimated that annual inflation in the euro area will rise from 2.6% in 2021 to 3.5% in 2022, before then falling to 1.7% in 2023.
“After reaching a record rate of 4.6% in the fourth quarter of last year, inflation in the euro area is projected to peak at 4.8% in the first quarter of 2022 and remain above 3% until the third quarter of the year,” the commission said in a statement.
“As the pressures from supply constraints and high energy prices fade, inflation is expected to decline to 2.1% in the final quarter of the year, before moving below the European Central Bank’s 2% target throughout 2023,” the institution added.
These numbers point to an upward revision in the ECB’s own inflation forecasts at its next meeting in March. The outlook for inflation, but also for the overall economy in Europe, is also dependent on tensions between Ukraine and Russia.
“Risks to the growth and inflation outlook are markedly aggravated by geopolitical tensions in Eastern Europe,” the commission said in a statement.