Also similar to the U.S. situation is that the The breadth of inflation has also increased central challenge for European policymakers throughout 2022. Eighty percent of the CPI is remains rising inflation. To be successful in now tracking at an annual rate above 3%, and guiding inflation back down to target, the core inflation accelerated from 2.6% at the start European Central Bank will need a combination of the year to 5% as of November. We expect of good decision-making, good communication, both headline and core inflation to peak in and good luck. The headline Consumer Price Index December 2022 and then fall gradually in 2023 as (CPI) rate doubled, from 5% at the start of 2022 energy and food price base effects unwind and to 10% in November, predominantly because of demand softens. We still, though, expect inflation accelerating energy and food prices. A weakening to average 5.5%–6% in 2023, well above the of the euro, partly driven by the war-induced ECB’s target of around 2%, as services inflation negative terms-of-trade shock (Figure I-20), has persists and core goods pressures dissipate amplified this inflationary pressure, as it raised only gradually (Figure I-21a). the cost of imports priced in foreign currencies, 4 putting downward pressure on growth. FIGURE I-20 The current account has switched from surplus to deficit % )  P D  f G % o t ( n  u o c c  t a n e– r r u C– –             Note: Monthly data from January 2000 to August 2022. Sources: Vanguard calculations, based on data from Bloomberg, as of October 24, 2022. 4 A country’s terms of trade refers to the relative price of exports compared with imports. 25