Portugal: Selected Issues

International Monetary Fund

No 2023/219, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper reviews inflation in Portugal, recent trends, drivers and risks. While below average euro area (EA) levels, inflation has been strongly correlated with the rest of the EA. Inflation picked up slowly in 2022H1, reflecting delayed pass through from international commodity prices to headline, but accelerated quickly in 2022H2. The analysis provides a model-based forecast of headline and core inflation using assumptions from the January 2023 World Economic Outlook and conducts sensitivity assessment, including the evaluation of risks of developing a sustained wage-price inflation spiral under current circumstances. Inflation in Portugal is determined by similar factors as in other advanced economies (AE) countries. Inflation in Portugal and other AEs is projected to decline gradually in 2023 and 2024. Simulations to analyze the effect of such potential risks suggest that inflation could increase further with shocks but would remain on a downward trend under most scenarios. Analysis on inflation processes suggests that inflation in Portugal has likely peaked, but some upside risks should not be ignored.

Keywords: aggregate labor market dynamics; wage-inflation spiral; HICP inflation weight; employment share; C. inflation projection; Inflation; Mortgages; Employment; Housing prices; Labor markets; Europe; Global (search for similar items in EconPapers)
Pages: 51
Date: 2023-06-22
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