Inflation rate should drop significantly from April onwards

  • Lusa
  • 17 April 2023

The SP forecasts that the inflation rate will fall to 5.1% this year, up from the 4% estimated in October, before dropping to 2.9% in 2024.

Portugal’s finance minister, Fernando Medina, said on Monday that from April onwards the inflation rate should register a significant drop, anticipating that in the second half of the year there will be months with inflation below 5.1%.

“What will happen is that from the month of April, May (…) the inflation rate will register a significantly lower trend,” compared to what has occurred in these first months of the year, said Fernando Medina, who is today presenting the government’s Stability Programme (SP) 2023-2027, in Lisbon.

The SP forecasts that the inflation rate will fall to 5.1% this year, up from the 4% estimated in October, before dropping to 2.9% in 2024.

The minister specified that this annual figure of 5.1% indicated that in the second half of the year there would be “months of inflation of less than 5.1%,” adding that this “phenomenon of falling inflation has to do with what is happening in the energy markets,” and also in the industrial component.

The minister pointed out, however, that lower inflation did not mean a drop in prices, but rather slower rises, although this did not rule out some goods actually seeing an “effective decrease in prices”.

The SP’s macroeconomic scenario for the 2023-2027 period, which the Portuguese executive is submitting to the European Commission and parliament, predicts a downward trajectory for the Harmonised Index of Consumer Prices (HICP).

However, the 5.1% for this year means an upward revision compared to the 4% forecast in October in the state budget for 2023 (OE2023), and compares with the 5.5% forecast by the Bank of Portugal (BoP) and the 5.9% by the Public Finance Council (CFP).

Among the main international economic institutions, the European Commission forecasts a rate of 5.4%, the International Monetary Fund (IMF) 5.7%, and the Organisation for Economic Cooperation and Development (OECD) 6.6%.

The year-on-year change in the Consumer Price Index (CPI) slowed to 7.4% in March, down 0.8 percentage points from the previous month and down for the fifth consecutive month, according to data released by the National Statistics Institute (INE) on 13 April.

In the Stability Programme presented today, the government included an upward revision of the growth forecast for the Portuguese economy this year, to 1.8% (compared to 1.3% forecast in October), and revised downwards the budget deficit, predicting it will be 0.4% this year, below the 0.9% in the state budget.

As for the public debt ratio, the executive estimates that it will fall to 107.5% this year and will be below 100% in 2025.