BAKU, Azerbaijan, Nov.23. In 2022 and 2023, prices of energy commodities, most notably natural gas, drive a substantial share of consumer inflation in the euro area, Trend reports Nov.23 with reference to the European Commission.
“Namely, in 2023, they add around 2¼ pps. to the projected inflation rate, measured by the private consumption deflator, of 5.8% in 2023, partly via second-round effects. The negative terms of trade effect of energy prices and its impact expected GDP growth (by -½ pps.) after a large negative impact in 2022 (-1 ppt.). The gradual stabilisation and subsequent partial reversal of commodity prices contribute markedly to the forecast decline in inflation and to an increase in real growth to its trend growth in 2024,” reads the latest report released by the Commission.
The report reveals that import prices drive up inflation and slow growth.
“Prices of imported non-energy goods and services are projected to keep inflation high in all three forecast years, but most notably in 2024 (+1¼ pps.). Inflation in the outer year would otherwise fall below 2%, according to the model estimation. At the same time, elevated imported non-energy inflation also weighs negatively on euro area GDP growth in 2023 and 2024.”
The European Commission warns that while domestic demand shocks support growth, supply conditions are expected to worsen.
“Shocks to domestic demand remain among the few positive growth factors, even if their contribution eases markedly over the forecast horizon. After a strong positive impact in 2022 (+4 pps.), following the reopening of the economy, these shocks add around ¾ ppt. to growth in 2023 before fading in 2024. Relative to 2020, the negative contribution of these shocks to inflation diminishes. Adverse supply (productivity) factors emerging in 2021 are expected to continue to dampen GDP growth, shaving off around 1 ppt. of GDP growth in 2023. The estimated positive contribution of these shocks to inflation remains high throughout the forecast horizon, albeit it falls significantly in 2024.”
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