Brussels raises inflation forecasts

Brussels lifted its annual inflation forecasts on Monday, on the back of “persistent” pricing pressures.

Publishing its spring economic forecast, the European Commission said it expected Eurozone inflation to be 5.8% this year and 2.8% in 2024, compared to an earlier prediction made in February for inflation of 5.6% and 2.5% respectively

It noted that while headline inflation was continuing to ease, as oil and gas prices moderated, core inflation – which strips out more volatile energy and food elements – was “proving more persistent”. Core inflation hit an historic high of 7.6% in March.

Brussels now expects core inflation to average 6.1% this year before falling to 3.2% in 2024, as profit margins absorb higher wage pressures and financing conditions tighten.

The Commission also upped its growth outlook on the back of lower energy prices and a resilient labour market. It now expects GDP to grow by 1% this year across the European Union – compared to its previous forecast for growth of 0.8% – and by 1.7% next year. It expects Eurozone GDP to rise by 1.1% in 2023 and by 1.6% in 2024.

But it warned that downside risks to the economic outlook had increased, including persistent core inflation restraining household spending, which in turn could lead to a tightening of monetary policy.