Food prices increased in January, due to the end of VAT Zero and electricity prices also rose in the first month of the year
The Bank of Portugal is more optimistic about the rate of decline in inflation, predicting that the rate will fall to 2.4% this year, despite temporary effects on food and energy prices, it was announced this Friday.
In the March Economic Bulletin, the entity led by Mário Centeno predicts that the Harmonized Consumer Price Index (HIPC) will fall from 5.3% in 2023 to 2.4% in 2024, a downward revision of 0.5 percentage points (pp.) compared to what was projected in December.
The evolution reflects the reduction in the rate at the end of 2023 and a stabilization in the first quarter of 2023, although temporary effects on food and energy prices are expected throughout the year.
The Bank of Portugal recalls that food prices increased in January, due to the end of VAT Zero and that electricity prices also rose in the first month of the year.
However, it predicts that underlying inflation (which excludes food and energy) is expected to continue to decline throughout 2024, “reflecting the lagged transmission of the reduction in the costs of raw materials and intermediate goods and the lower domestic inflationary pressures associated with the impact of monetary policy”.
The Bank of Portugal (BdP) continues to forecast that the inflation rate will reach the target of 2% in 2025 and fall to 1.9% the following year, a convergence “towards values consistent with price stability” that “reflects lower external pressures and the effects of past monetary policy decisions”.
It also estimates that the indicator that measures inflation with pressures arising from wages and profit margins is expected to show more moderate growth in 2024 and subsequent years, after having increased by 7.2% in 2023.
“The projected moderation reflects increases in productivity-adjusted wages in line with inflation and lower pressures associated with the gross operating surplus”, it states, adding that “lower internal pressures, along with the growth of less than 2% expected for oil prices imports, ensure the convergence of inflation to values consistent with price stability”.
The profile is similar to that projected by the European Central Bank for inflation in the euro zone.
