The government has already revised upwards its inflation forecast for this year as a whole. Contrary to the 3.7% recorded in the state budget for 2022 in April, Finance Minister Fernando Medina now admits that the price increase will reach 7.3%, a scenario already approaching the forecast. . For 2023, the European Commission (EC) expects inflation in Portugal to slow to 3.6%. While the Portuguese management foresees a more optimistic scenario of 1.7% in the variation of the consumer price index.
The views of the International Monetary Fund (IMF) are similar to those of the EC, albeit slightly more positive. The institution led by Kristalina Georgieva estimates an inflation rate for Portugal of 6.1% for 2022 and 3.5% for 2023. The Bank of Portugal forecasts a price increase of 5.9% by the end of the year. And a slowdown to 2.7% in 2023.
But the uncertainty surrounding the war in Ukraine, and the ensuing energy crisis, the problem of raw material shortages, due to the cutbacks in supply chains caused by incarcerations of the covid-19 pandemic, they can shake the bills. At the moment, inflation in Portugal is 8.9%. But at the rate used to compare price increases across member states, the country is sitting at 9.3%, two points above the maximum value reaching the eurozone (9.1%).
Goal is to reach 2%
However, European Central Bank (ECB) President Christine Lagarde is adamant about the need to fight inflation. The priority of the European Union and the Eurozone is to reach 2%. That is why the ECB decided to raise interest rates by 50 basis points in July and now, in September, to raise it by another 75 points to 1.25%. It is the first time since 1999 that the eurozone central bank has opted for an interest rate hike of this magnitude, 75 basis points.
These interventions in the market have such an effect on the interest on mortgages that with a loan of 250 thousand euros they can increase the mortgage costs by an extra 150 euros per month, according to simulations by Deco for Dinheiro Vivo.
New interest rate hike
Like the US Federal Reserve (FED), the ECB should not stop rising interest rates here. At the end of last week’s meeting, when the ECB presidents decided to raise interest rates by a further 75 basis points, Christine Lagarde left a warning: “Inflation remains too high and is likely to be above our target for a long period of time. While supply restrictions are easing, they continue to gradually affect consumer prices and put pressure on inflation, as well as the recovery in demand in the services sector.” “Given the current assessment,” the ECB expects “to raise interest rates further in several future meetings to reduce demand and protect against the risk of an upward transition in high inflation expectations,” he stressed.
Fed has already been raised four times
It should be remembered that the US, on the other side of the Atlantic, has already raised its key interest rates four times, the latest to an additional 75 percentage points in July. This increase places the reference rates between 2.25% and 2.50%. Two more increases are planned by the end of the year.
The cycle of rate hikes in the US started in March with a rise of 25 basis points, while the second rate hike took place two months later, in May, by 50 basis points. At its monetary policy meeting, which took place on June 14-15, the US central bank implemented its third rate hike, raising it by 75 basis points. Since the beginning of the year, the Fed has raised interest rates by a total of 225 basis points.
A direct or indirect consequence of this restrictive policy by the FED is that the US has managed to reduce inflation from 9.1% in June, a maximum since 1981, to 8.5% in July. The goal is the same as that of the ECB: to achieve an inflation rate of 2%.
Salomé Pinto is a journalist for Dinheiro Vivo
Source: DN
