The surge in prices in the euro zone, accentuated by the war in Ukraine, is “very close” to experiencing a peak before an expected decline in the second half of the year, said Thursday Luis de Guindos, vice-president of the European Central Bank. .
“My assessment is that we are very close to the peak and we will start to see inflation come down in the second half of the year,” the official said during a hearing before the European Parliament in Brussels.
Nevertheless, “inflation will be high even in the last quarter of the year”, the institute seeing it still above 4%, added the central banker.
In the eurozone, inflation hit a record 7.5% in March, well above the ECB’s medium-term target of 2% and meant to reflect price stability.
In the latest inflation forecasts published in March, the guardians of the euro expect an average rate of 5.1% in 2022, according to a so-called “baseline” scenario which does not include a reduction, or even a stop, of Russian gas supplies with its devastating consequences for production in Europe.
Such a case, not mentioned Thursday by Mr. de Guindos, would in fact cause an additional increase in energy costs, which already account for half of the current surge in inflation.
This would bring average inflation to 7.1% in 2022, the ECB predicted in March. A new set of forecasts will be released in June, when setting the course for monetary policy.
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The institute estimates that the progressive recourse to other sources of energy, as Germany, which is very dependent on Russian gas, is preparing to do so, will reduce pressure on prices.
In the future, the ECB will above all monitor “second-round effects” in terms of price-wage spirals which will be “decisive” on the expected level of inflation, according to Mr. de Guindos.
“So far, we have not seen such wage dynamics” with negotiated increases described as “prudent” and “completely compatible with the objective of price stability”.
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