Inflation is expected to return and stay in the upper half of the 1.5%-3.5% variation band until the end of the forecast horizon.
The major uncertainties and risks surrounding the inflation outlook stem from the future stance of fiscal and income policies, while the evolution of the current account deficit is a matter of concern.
In addition, the impact that the new benchmark index for loans to consumers (IRCC) will have on lending and the monetary policy transmission mechanism is uncertain.
Moreover, there is an increasing number of signs on a worsening of the euro area and global economies and the ensuing uncertainties about their outlook are growing, especially amid the trade war and Brexit. Particularly relevant are the ECB’s and the Federal Reserve’s decisions on monetary policy easing, as well as the stance of central banks in the region, the central bank said in a detailed statement Monday.
In June 2019, the annual CPI inflation rate went down to 3.8% (from 4.1% in May), slightly below the forecast, but above the variation band of the target. This owed to the significant drop in the prices of vegetables and fuels. Compared to end-Q1, when it had stood at 4.03%, the annual inflation rate decreased owing solely to developments in June. Behind the slowdown versus March stood entirely the exogenous CPI components, especially the dynamics of fuel prices, the central bank said.
In May, the central bank revised its 2019 year-end inflation forecast to 4.2%, well above its variation target band, from a previous forecast of 3%, after the annual rate climbed to a higher than expected 4.1% in April.