Eurozone weekly economic briefing | High inflation keeps fuelling debates

With eurozone inflation confirmed at a record-high of 5.0% y/y in December, the debate over how long upward price pressures will continue returned to the spotlight this week. In particular, after months of defending its dovish position, the ECB Governing Council now acknowledges a wider risk of inflation staying “higher for longer”.

What you will learn:

• Despite this shift in the balance of risks, the ECB central scenario continues to see inflation easing markedly over H1 this year and even falling below the 2% target later in H2, which is consistent with our own baseline.
• Easing supply bottlenecks, falling energy prices and a normalisation in economic activity after the post-lockdown rebound will be behind slowing prices, while medium-term structural drags on inflation will again become apparent.
• On the political front, in a speech to the EU parliament, France’s President Emmanuel Macron set the priorities for his country’s six-month presidency of the EU Council.