Unusual and unexpectedly high inflation has been one of the most analyzed and discussed topics in 2022with visible effects: the loss of purchasing power that has increased social unrest and the risk of political instability, the aggressive tightening of monetary conditions, uncertainty about the evolution of economic costs, financial volatility, and the slowdown in the activity.
The issue will continue to be in the focus of markets and economic agents this year. Its evolution will condition the action of central banks, affecting the intensity and duration of the current growth moderation cycle, says a report from BBVA Research.
Its chief economist, Enestor Dos Santos, stated that in the absence of new shocks, inflation will slow down in 2023. According to him, the “green shoots” they have begun to appear in recent months, in line with the normalization of global value chains and lower prices of raw materials.
Likewise, he explained that beyond these trends, the price dynamics will benefit from favorable statistical effects: the significant price increases at the beginning of 2022 will create positive base effects, which will allow the reduction of annual inflation in the following months. .
The report you accessed The Observer It adds that even though inflation seems to have peaked and will likely continue to decline, price pressures will remain significant. Average inflation could be around 4% in the United States and 6% in the euro area next year, below the 8% observed in both geographies in 2022.
Meanwhile, by the end of 2023, inflation would be close to 3% in both regions, still above the targets. A similar dynamic is likely in most other economies.
Dos Santos explains that a series of factors will continue to fuel prices next year. Probably the most important will be the dynamism of labor markets, particularly in the United States, but also in the euro area and other economies, which will allow for significant wage increases in nominal terms, although negative in real terms.
In this context, the most likely, according to the economist, is that central banks continue to raise interest rates, at least in developed economies, where the upward cycle started later than in most emerging countries. The Federal Reserve and the European Central Bank are expected to raise rates to at least 5% and 3.75%, respectively, in the coming months and then leave them unchanged at least until the end of 2023.
Another part of the report highlights that despite the relative strength of private consumption, it is most likely that the ongoing monetary tightening will end up reducing growth and eventually contribute to short and mild recessions, at least in the United States and Europe.
In this last, It would also weigh the high cost of energy, although an environment of gas scarcity seems to be avoided. Global growth would thus fall from 6.3% in 2021 and 3.3% in 2022 to approximately 2.3% in 2023, an unusually weak level, Dos Santos explained.
