Portugal to continue easing inflation pain, but minister warns of limits

Portugal's government will continue to support families and companies hit by rampant inflation, but not at any cost as public finances must remain on a sound footing, the finance minister said on Wednesday. Fernando Medina told a parliamentary committee that the external backdrop was becoming "more difficult", citing last week's interest rate hike by the European Central Bank, which also slashed next year's euro zone growth forecast to 0.9% from 2.1%.

Portugal's government will continue to support families and companies hit by rampant inflation, but not at any cost as public finances must remain on a sound footing, the finance minister said on Wednesday.

Fernando Medina told a parliamentary committee that the external backdrop was becoming "more difficult", citing last week's interest rate hike by the European Central Bank, which also slashed next year's euro zone growth forecast to 0.9% from 2.1%. Portugal, where annual inflation hit 9% in August, last week rolled out additional help to families worth 2.4 billion euros ($2.4 billion), bringing the total value of such aid to 4 billion euros, something Medina called a huge budgetary effort.

"We go as far as we can. But let's be clear: given the scale of the shock, there is no government in the world capable of putting an end to these price rises," he said. "We have to respond to the needs of the present, but not compromise our ability to act in the future, if it evolves more adversely," he said, reaffirming this year's budget deficit target of 1.9% after 2.8% in 2021 and an expected drop in the debt-to-GDP ratio to 120% from 127.4%.

Portugal has painful memories of austerity imposed under the terms of a 2011-14 international bailout after a debt crisis. The opposition has criticised the government for focusing on the deficit and not sharing higher tax revenue, which has been partly boosted by high inflation, with families and businesses.

But Medina said Portugal's recent credit rating upgrades were not only thanks to the economy, which he said is expected to grow by more than 6% this year, but also to the fiscal discipline that he has vowed to maintain. ($1 = 1.0008 euros)

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