Banco de España’s Deputy Governor: Inflation Could Alter 2022 Macro-Financial Scenario
3 February 2022
By David Barwick – FRANKFURT (Econostream) – High inflation could change the macro-financial outlook, Banco de España Deputy Governor Margarita Delgado said Thursday.
In a speech at networking organisation Madrid Network, Delgado said of ‘the recent sharp pick-up in inflation’ that ‘[t]his additional element of uncertainty, which has emerged in recent months, has the potential to alter the macro-financial scenario projected for this year.’
Most probably, average Spanish inflation this year would be about 4%, but moderate as the year progresses, she said, reflecting role in high inflation of ‘largely transitory’ factors.
‘In the current circumstances, we could not rule out the emergence of scenarios in which inflationary pressures are more lasting than initially expected’, she said, However, one risk is that ‘the correction in energy prices may be less pronounced than we now anticipate, for instance as a result of an upsurge in geopolitical tensions’, she said.
‘Second, the pass-through of higher production costs to firms' selling prices and of higher consumer prices to wages has so far been rather moderate’, she continued. ‘We must therefore avoid a scenario in which price and wage increases feed back on each other.’
While the Spanish central bank sees 2022 domestic economic growth of over 5%, she noted, Delgado cast doubt on the usefulness of current forecasts. ‘Beyond the specific figures of the forecasts which, as we are seeing, rapidly become obsolete in such an uncertain context, it is not lost on any of us that the start of the year has been bumpy on a global scale.’
The recovery could thus turn out to be an ‘obstacle course’, she said, quoting IMF Managing Director Kristalina Georgieva.
‘In the very short term, the dynamism of the economy in Spain and the rest of the world will continue to be dampened by, among other factors, the spread of the omicron variant and the uncertainties lurking in the eastern confines of Europe’, she said. ‘But thereafter, barring a severe worsening of the conflict in Ukraine, we expect activity to resume higher growth as distortions in global supply chains and inflationary pressures ease and tourism flows gradually normalise.’