Bank of Portugal sees inflation at 5,5% this year and points to rise in food prices

Above the 4% predicted by the Government

The Bank of Portugal (BdP) today revised the inflation rate slightly higher this year to 5,5%, above the 4% forecast by the Government, warning of the acceleration in the price of food goods.

In the March economic bulletin, released today, the institution led by Mário Centeno considers that the inflation trajectory will be downward, but the pace of price acceleration, despite decreasing compared to last year, will be higher this year than the bank expected in December.

The BdP projects that the Harmonized Index of Consumer Prices (HICP) will decline from 8,1% in 2022 to 5,5% in 2023, falling to 3,2% in 2024 and to 2,1% in 2025.

This scenario compares with expected inflation in December of 5,8% this year and 3,3% in 2024, as well as the executive's forecast of 4% this year.

The BdP forecasts that the IPHC excluding energy goods will reach a rate of 6,7% this year, 3,2% in 2024 and 2,4% in 2025.

The supervisor explains that, “in the coming quarters, the decline in inflation will essentially be based on the evolution of energy and food prices, but its magnitude is uncertain”.

He also points out that “the moderation in the increase in the prices of other goods and services will be slower, due to the lagged effects of the prices of energy goods, the recovery of profit margins and the growth of wages”.

“The persistence of strong price increases in the euro area, particularly in components with less volatile prices, has fueled expectations of a more restrictive monetary policy over the projection horizon”, he says.

The BdP warns, however, that, “despite the reduction in total inflation, the year-on-year rate of change in food prices continued to increase, standing at 19,0% in February 2023”.

It exemplifies that, by components, the year-on-year change in the prices of unprocessed food goods stood at 21,8% and that of processed goods at 17,9%, reaching maximums in both cases.