Inflation has recently accelerated largely due to the rise in the price of oil. When assessing the medium-term trend in inflation it is important to consider core inflation, which better reflects the euro area’s internal cost pressures.
The economic policy measures planned by the new US administration are geared towards fuelling growth. This alternative scenario assesses the possible effects of potential infrastructure investments, tax cuts and the proposed border adjustment tax.
The flexibility of relative prices constitutes a key element of the dynamics of the economy. The same inflation rate may mask very different trends in relative prices.
Global growth will strengthen relative to 2016 and proceed at a pace of over 3% in 2017–2019. Chinese growth will decelerate in an orderly manner, moderating the pace of global growth.
The euro area economy has now benefited from four years of unbroken growth, and this is expected to continue. The evolution of the global economy will be affected by the economic policy of the new US administration. A potential increase in protectionist actions may impair the expansion of the global economy and trade.
A very substantial degree of monetary accommodation is still needed in the euro area for underlying inflation pressures to build up and support inflation in the medium term. More Bank of Finland Bulletin articles will be published in the beginning of April.
Estimated on the basis of inflation swaps, euro area inflation expectations have increased. Interpretation of inflation swaps is not, however, a straightforward matter, as the price of an inflation swap can be affected by, for example, its risk level.
