Inflation in Portugal: Recent Trends, Drivers, and Risks

This paper examines recent trends, main drivers, and risks to near-term inflation in Portugal. Before the energy crisis, inflation in Portugal was low, often below the Euro Area average, but it accelerated quickly in the second half of 2022.
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Volume/Issue: Volume 2023 Issue 044
Publication date: July 2023
ISBN: 9798400247309
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Inflation , Labor , Economics- Macroeconomics , Money and Monetary Policy , International - Economics , Inflation , oil prices , wages , second-round effects , pass-through , wage-inflation spiral , HICP inflation weight , anchored inflation expectation , inflation in Portugal , C , inflation projection , Energy prices , Commodity prices , Global

Summary

This paper examines recent trends, main drivers, and risks to near-term inflation in Portugal. Before the energy crisis, inflation in Portugal was low, often below the Euro Area average, but it accelerated quickly in the second half of 2022. Our estimated Phillips curve regression suggests that, similarly to other Euro Area countries, inflation in Portugal has been largely driven by food and external prices pressures. Inflation is projected to gradually decrease, reflecting receding energy prices and anchored inflation expectations. However, uncertainty remains high and inflation could remain elevated, especially if the inflationary process became backward looking or wage-inflation spirals are induced by pressures from energy prices.