ECB: Still behind the inflation curve

ECB staff forecasts are still playing catch-up to the new inflation reality

• The ECB’s Sept. Core HICP forecast for 2023 looks stale already, once more failing to allow for much upside to the typical monthly pattern in the year ahead;

• Upward revisions are needed in next week’s forecast revisions, therefore;

• More generally, the soft Nov. print was mainly due to energy price weakness. Core HICP in the Eurozone has yet to peak.

Hidden amongst the numerous central bank meetings next week will be the ECB staff forecast update for December. We previously noted, before the Sept. forecast update, that the ECB has an “inflation problem” in their timidity in updating forecasts and the need for continued upward revisions.

How do the Sept. forecasts look?

Well, how do the Sept. forecasts look?

The table below performs a similar exercise to previous. And it is easy to see how their 2023 forecast (of 3.4% full year) is already stale.

Indeed, starting with the flash Nov. HICP print, if we assume a typical inflation overshoot in December alone (compared to the 2015-19 average) plus the normal seasonal pattern for 2023, we already get 3.2% full year for 2023 (3.25% to 2 decimal places) which compares with the Sept. official forecast of 3.4%.

In other words, on the basis of inflation already in 2022, there is virtually no scope for additional inflation pressure in 2023 above the usual pattern for the Sept. forecast.