Philip Lane, chief economist at the European Central Bank, said that inflation in the eurozone is likely to slow sharply during the year. Even though there is still a strong momentum of price growth in the region, including prices for basic goods and services. Last week, the regulator also noted that most of the way in the cycle of tightening monetary policy has already been passed and overall inflation began to slow down after reaching double digits last fall. Lane stressed that the sharp decline in energy prices and the easing of supply tensions should accelerate disinflation and reduce corporate profit margins – a key driver of prices last year. Margins are expected to decline slightly as companies may face higher costs, including increased labor costs. In general, the ECB forecasts inflation to fall below 3% by the end of the fourth quarter, but then it may take almost two years before it returns to the central bank's target level of 2%. However, a number of central bank managers doubt this forecast, believing that price growth may take root above the target level. The main reason for such a protracted process is that nominal wage growth may remain quite strong for several years, as workers will want to restore their incomes affected by inflation.
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