Inflation remains very high in Portugal, with the National Institute of Statistics (INE) confirming yesterday that consumer prices rose by 9.9% in November compared to the same month of 2021.
The final prices of various goods and services related to tourism, clothes, toys, restaurants, car fuel and gas are some of the items in the typical basket of Portuguese consumers, which are still much more expensive than a year ago, and now seem to rise are the ones who correct downward the most, thus helping to lower the national rate, albeit slowly and little.
However, figures from INE indicate that inflation, which remains at decades-old highs, may finally break the explosive trajectory of recent months.
According to a study by Dinheiro Vivo, headline national inflation, measured on an annual basis, showed a slight decline of two-tenths in November.
In October, it hit a record 10.1% (its highest since May 1992), but in November that same annual rate slowed by two-tenths, the biggest drop since June 2021, as the Portuguese economy recovered from the devastation of the pandemic and constraint.
In the list of more than a hundred specific goods and services that make up the normalized consumer reference package, the biggest drag on passenger transport prices has been air transport, with a 25 percentage point drop in respective inflation from October’s record levels. The increase in November was therefore 12.8%, a high figure that is more than twice the average of headline inflation calculated the previous month.
The second largest drop from October (we’re only talking year-over-year rates here) is seen in accommodation services, with the pace slowing by about 12 percentage points. Nevertheless, housing inflation was close to 30% in November.
In the case of “liquid fuels (for heating)”, the rate of inflation leveled off by almost nine percentage points, bringing the price increase to 30% in November.
The item “organized holidays” also cooled with a drop in the respective inflation by eight percentage points to 15.6% in November.
Inflation in “fuels and lubricants for personal transportation” was close to 11%, but this value is down about five percentage points compared to the rate recorded in October.
Gas inflation stands at a monumental 73%, but has fallen slightly compared to October (minus 1.6 points).
The price associated with consumption in “restaurants and hotels” increased by 13%, but registered a moderation of 3.5 percentage points compared to October’s inflation.
Several agents in the tourism sector have publicly confirmed that activity began to weaken little by little in November, but this after several months (especially in the summer) of explosive turnover.
Another effect that could affect and pull inflation down is the closeness to Christmas and the aggressive discount campaigns (such as the Black Friday initiatives) that caught the eye last month.
Inflation on telephones and mobile phones fell by about three percentage points to 2.9% in November.
In the group “games, toys and articles for recreation and leisure” prices are falling (negative inflation of 0.5% in November), after falling 2.4 points compared to October.
“Sound and imaging equipment”, where televisions are pontificated, for example, is now almost 10% cheaper than in November 2021, with this inflation recording a loss of two percentage points compared to October.
As is well known, the inflation and energy crisis also affected food costs.
INE shows that one of the products whose inflation fell the most between October and November was “vegetables”. Yet the price of these essential goods is up more than 24%, one percentage point less than in October.
Clothing is also more important. Inflation on this item was only 1.9% last month, one percentage point lower than in October.
ECB raises rates, but less aggressively
Today, the European Central Bank (ECB) is expected to raise rates again to try to halt European inflation, but several economists say the increase should be more moderate.
The central bank observatory of the research firm BPI points out that “inflation in the euro zone showed the first positive signs by slowing to 10% year on year (10.6% in October), while underlying inflation (which includes food volatility and energy not included) stabilized at 5%”.
“The moderation was broad across major countries and gives the ECB some room to maneuver to slow the pace of rate hikes,” analysts say.
For example, at today’s meeting, we expect “the ECB to raise rates again, under pressure from the undesired and persistently high inflation rate”, but with less aggressiveness.
“After two consecutive increases of 0.75 percentage point, we expect a 0.5 percentage point increase in the official interest rate to 2% (deposit rate) and 2.5% [taxa de refinanciamento, a referência principal]🇧🇷
According to this team of BPI economists, “among the factors justifying this moderation in growth rates, we highlight: (i) the cooling of economic activity and (ii) the fact that monetary tightening was very substantial (2 more, 5 points since July, including the 0.5 in December) and need time to be passed on to the economy as a whole”.
“This week, the ECB is also likely to announce the general rules to reduce reinvestments related to the APP asset purchase program,” they add.
“This process could begin sometime in the second quarter of 2023 and should be gradual and predictable. For example, if the ECB followed a strategy similar to that of the Fed, it would set a monthly maturity limit that would not be reinvested a limit that could be gradually raised,” the BPI study states.
“For example, the ECB could mature 15 billion in the first three months, 30 billion in the next three months… of 2023 and will help tighten monetary conditions and indirectly reduce the risk of central bank losses.”
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
