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Analysts at the bank said the firm now forecasts headline inflation to average 5.5% in 2023, 2.3% in 2024 and 1.4% in 2025, from 5.6%, 2.6%, and 1.4%, respectively.
“The revision lower (and further below consensus) is mostly driven by the move lower in energy prices. We now expect core inflation at 4.9% in 2023, 2.5% in 2024 (both 10bp lower), and, still, 1.8% in 2025,” the analysts revealed.
“We expect inflation to drop below target by August 2024. Core inflation will likely get there with a slight lag in 4Q24,” the analysts added. “We still expect, as has been the case for a long while, a sizeable inflation undershoot in 2025 driven by lack of proper excess demand and a central bank that has, likely, gone too far.”
However, focusing on the near term, BofA believes inflation will likely move higher in December and January, driven by the base effects of energy prices. The bank expects Euro area inflation at 3% year-on-year in December, with core inflation moving lower to 3.4% year-on-year.
“France HICP should print at 4.3% yoy, Germany at 4.0% yoy, and Italy 0.4% yoy,” the analysts said.
