Will inflation still be a top concern in 2024? In 2023, it has clearly calmed down, both in the United States and in the euro zone, under the effect of the restrictive monetary policies carried out since March 2022 by the Fed and since July 2022 by the European Central Bank (ECB). In the space of one year, American inflation fell from 7.1% year-on-year in November 2022 to 3.1% last November. At the same time, it fell in Europe from 10.1% to 2.4%. In France, where the increase in prices was less marked thanks to the implementation of various price shields and the capacities of our nuclear fleet, the decline is also significant: +3.4% over one year last November, compared to + 6.2% a year earlier.
However, inflation has not finished giving central banks a hard time, which has for the moment opted for a pause in the tightening of their policy. A balancing act, particularly in Europe where growth is slow. Added to this is increased pressure on public debt, brakes on investment and a blockage in the real estate market. So what can we expect from the year 2024 in terms of inflation? L’Express, with the help of five economists, has identified three scenarios, the probability of which appears more or less strong: the continued decline, the plateau and the rebound.
#1 The decline continues
The ECB has made it its hobby horse and does not seem ready to give it up: the 2% inflation objective remains in its sights. It anticipates that maintaining its key rates at current levels will continue to have its effects in the coming months. The European institution forecasts an average price increase of 2.7% in 2024, then 2.1% in 2025, and finally 1.9% in 2026. For economist Patrick Artus, the 2% target appears however, even more compromised than before, notably due to the stagnation of productivity. However, the wage increases recorded in 2023 are expected to continue in 2024, and without productivity gains, inflation is not expected to decrease. “Returning to 2% over one year will not be so easy and stabilizing around this level will be even more complicated,” estimates Mathieu Plane, deputy director of the analysis and forecasting department of the OFCE.
The scenario of a fall in inflation seems all the more optimistic given that there are many unknowns. “The main ones come from global trade and in particular the impacts of military conflicts, particularly in the Middle East. Another type of uncertainty, which we will have to get used to, concerns the climate and the potential consequences of extreme temperatures on prices and production which are likely to increase in the years to come”, adds Eric Monnet, director of studies at EHESS and professor at the Paris School of Economics.
#2 The board
This is the scenario that appears most likely for the year 2024. Véronique Riches-Flores, founder of Riches Flores Research, anticipates a low point in inflation in April at around 2.5% in the euro zone, which would drive the ECB to change its policy: “Disinflationary forces will multiply at the start of the year, which will lead the central bank to lower interest rates.” We would therefore observe a further decline in inflation over one year, during the first quarter, before it stabilizes and reaches a plateau. “It’s already very satisfying. The question behind it is: will economic activity hold up or will we face a recession?” asks the economist.
Mathieu Plane confirms: “The slowdown in price increases will converge towards 2.5% by the second half of 2024”. An encouraging trend that we could not imagine a few months ago. “In reality, the decline in the price of raw materials was more significant than anticipated: with the slowdown in growth, demand was not very dynamic, which reduced tensions,” continues the expert. The tray would not help the affairs of the Governing Council on the side of Frankfurt which would end up being forced to lower rates, before having reached its objective of 2%, because of the risk of recession. However, monetary easing promises to be limited, according to Patrick Artus. “The financial markets believe that the ECB will react to the strong disinflation from March 2024, with a reduction of 150 basis points. This is completely unreasonable, at best there will be a reduction of 25 or 50 basis points”.
#3 The rebound
The war in Ukraine has proven that the economy can hit a tipping point at any time. “The international environment is unstable. We have always been surprised on this side, so we cannot rule out anything,” recognizes Mathieu Plane. It is therefore difficult to exclude the scenario of a rebound in inflation. At Groupama Asset Management, “the risk seems to us to be on the rise and not on the decline”, explains Christophe Morel, chief economist of the asset management company. “We can clearly see that companies do not want to lower their margin rate. If there is wage inflation, this will lead to an increase in prices. Moreover, in the event of a gradual recovery of the industry in 2024 , the cost of raw materials will in turn increase,” notes the specialist.
Another factor could weigh in the balance: the energy transition. “Economic transitions are by definition inflationary. Production processes were well defined. The energy transition involves making them evolve, using new resources which are rarer,” points out Christophe Morel. This evolution of production models “raises the question of this reconciliation between current inflation cycles and the energy transition objectives which are more inflationary”, adds Mathieu Plane. An almost taboo subject.
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