In the most recent European Central Bank press release the Governing Council today decided to increase the three key ECB interest rates by 50 basis points, in line with its determination to ensure the timely return of inflation to the 2% medium-term target. The elevated level of uncertainty reinforces the importance of a data-dependent approach to the Governing Council’s policy rate decisions, which will be determined by its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.
ECB staff now see inflation averaging 5.3% in 2023, 2.9% in 2024 and 2.1% in 2025. At the same time, underlying price pressures remain strong. Inflation excluding energy and food continued to increase in February and ECB staff expect it to average 4.6% in 2023, which is higher than foreseen in the December projections. Subsequently, it is projected to come down to 2.5% in 2024 and 2.2% in 2025, as the upward pressures from past supply shocks and the reopening of the economy fade out and as tighter monetary policy increasingly dampens demand.
The baseline projections for growth in 2023 have been revised up to an average of 1.0% as a result of both the decline in energy prices and the economy’s greater resilience to the challenging international environment. ECB staff then expect growth to pick up further, to 1.6%, in both 2024 and 2025, underpinned by a robust labour market, improving confidence and a recovery in real incomes. At the same time, the pick-up in growth in 2024 and 2025 is weaker than projected in December, owing to the tightening of monetary policy.
According to the US Bureau of Labor Statistics The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in February on a seasonally adjusted basis, after increasing 0.5 percent in January. Over the last 12 months, the all items index increased 6.0 percent before seasonal adjustment.
The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70 percent of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing. The food index increased 0.4 percent over the month with the food at home index rising 0.3 percent. The energy index decreased 0.6 percent over the month as the natural gas and fuel oil indexes both declined.
The index for all items less food and energy rose 0.5 percent in February, after rising 0.4 percent in January. Categories which increased in February include shelter, recreation, household furnishings and operations, and airline fares. The index for used cars and trucks and the index for medical care were among those that decreased over the month.
The all items index increased 6.0 percent for the 12 months ending February; this was the smallest 12-month increase since the period ending September 2021. The all items less food and energy index rose 5.5 percent over the last 12 months, its smallest 12-month increase since December 2021. The energy index increased 5.2 percent for the 12 months ending February, and the food index increased 9.5 percent over the last year.
From the same source the Producer Price Index for Final Demand decreased 0.1 percent in February, seasonally adjusted. Final demand prices advanced 0.3 percent in January and declined 0.2 percent in December 2022. On an unadjusted basis, the final demand index rose 4.6 percent for the 12 months ended in February.
In February, the decline in the final demand index was led by prices for final demand goods, which fell 0.2 percent. The index for final demand services edged down 0.1 percent.
The index for final demand less foods, energy, and trade services increased 0.2 percent in February after rising 0.5 percent in January. For the 12 months ended in February, prices for final demand less foods, energy, and trade services advanced 4.4 percent.
Final demand goods: The index for final demand goods fell 0.2 percent in February following a 1.2- percent advance in January. A 2.2-percent decline in prices for final demand foods was a major factor in the February decrease. The index for final demand energy moved down 0.2 percent. In contrast, prices for final demand goods less foods and energy rose 0.3 percent.
