European Central Bank President Christine Lagarde said on Thursday that inflation is set to remain higher for longer than expected, but it is temporary and price growth is set to ease over the course of next year.
“While the current phase of higher inflation will last longer than originally expected, we expect inflation to decline in the course of next year,” Lagarde said in the introductory statement to the post-decision ECB press conference.
Earlier on Thursday, the Governing Council left its key interest rates and forward guidance unchanged.
The ECB expects Eurozone inflation, which hit a 13-year high of 3.4 percent in September, to rise further this year. Core inflation accelerated to 1.9 percent in September.
Lagarde attributed the acceleration to surging energy prices and the recovery in demand that is out-pacing constrained supply.
Base effects related to the end of the VAT cut in Germany are still contributing to higher inflation, the ECB chief added.
Policymakers expect the influence of these factors to ease in the course of next year or to fall out of the year-on-year inflation calculation. Wage pressures are also expected to climb as the economic recovery progress.
Though the growth momentum moderated slightly in the third quarter, the bank still expects output to exceed its pre-pandemic level by the end of the year, Lagarde said.
Consumer spending, which is recovering after the spread of vaccination, is likely to be damped in the coming months as higher energy prices impact purchasing power.
Supply shortages continue to cloud the outlook for the industrial sector, Lagarde said.
“We see the risks to the economic outlook as broadly balanced,” Lagarde said.
“In the near term, supply bottlenecks and rising energy prices are the main risks to the pace of recovery and the outlook for inflation.”
Source: Read Full Article