ECB: US Inflation Outlook Much More Uncertain Than That of Eurozone
14 February 2022
By David Barwick – FRANKFURT (Econostream) – Inflation prospects are subject to considerably more uncertainty in the US than in the Eurozone, the European Central Bank said on Monday.
In a pre-release from the first economic bulletin of 2022, due out Thursday, the ECB said: ‘Looking ahead, the degree of uncertainty around the outlook for inflation seems to be much larger for the United States than for the euro area.’
The ECB noted that Consensus Economics forecasts of 2023 annual inflation ranged between 0.8% and 2.2% for the euro area and between 1.9% and 4% for the US, where only one forecast called for inflation of less than 2%.
‘This higher level of inflation in the United States can be linked to differences in economic slack and labour market tightness compared with the euro area, leading to stronger wage pressures in the United States’, it said.
‘At the same time, the pandemic is a unique situation with considerable differences compared with inflation developments in “normal” times, which require close monitoring and add to the uncertainty surrounding the inflation outlook in the United States as well as in the euro area’, the ECB added.
With respect to realised inflation, US upside surprises have been larger lately than those for the euro area, the ECB observed.
Echoing recent comments by Governing Council members, the pre-release said that with respect to ‘the underlying drivers of inflation developments, the United States is more advanced in the business cycle than the euro area and the US labour market has tightened, which has started to be reflected in some upward pressure on wages.’
Real GDP exceeded pre-pandemic levels two quarters earlier in the US than in the euro area, and in the former, ‘labour market tightness has increased sharply over recent months and the employment cost index for private industry workers has shown a relatively large increase’, the ECB said.
This compared with ‘quite subdued’ wage growth in the euro area, though there is some distortion associated with the crisis, in particular European job retention schemes, it said.