Economic forecasts 2023: The price of money and inflation

In December 2022, the European Central Bank (ECB) reassessed and increased Eurozone interest rates. The current value is 2.5%, the highest since 2008, although expected given the context (inflation level, US economy behaviour) and ECB’s macroeconomic vision.

Note that Eurozone inflation rate was 10.1% in November and 9.6% in December; reachin the highest ranking over the last decades. Euroarea expected estimates are higher than ECB´s goal, which is to combat monetary measures to combat inflation. An example of such policy are the measures adopted in December 2022.

Interest rates increase aim is to diminish inflation which forces a significative continuity upon rates behaviour (contrary reality regarding the economic momentum). However, inflation behaviour is not an exclusive of central banks since Governments and companies must moderate their budgetary policies, profit margins, and/or increments through mirror effect (if competitors promoted).

The International Monetary Fund (IMF) warned in November that central banks monetary policies, as well as, governmental budgetary must denote an alignment with inflation rate reduction. Otherwise, interest rates trend will continue for an extended time lapse.

In 2023, central banks challenge, is to find a balanced solution between interest rates and stagnation and/or economic crisis. However, this trade-off relies on economic agents behaviour and central banks economic “message”.