ECB Raises Inflation Forecasts

The European Central Bank raised its inflation forecasts for this year and the next two years on Thursday.

The headline inflation projection for this year was raised to 2.2 percent from 1.9 percent seen in June, the latest ECB staff projections unveiled by ECB President Christine Lagarde showed.

The price growth outlook for next year was lifted to 1.7 percent from 1.5 percent. The projection for 2023 was raised to 1.5 percent from 1.4 percent.

Policymakers expect the temporary factors pushing headline inflation higher to ease or fall out of the year-on-year inflation calculation in the course of 2022.

Projections for core Inflation, which excludes food and energy prices, were raised to 1.3 percent this year, 1.4 percent in 2022 and 1.5 percent in 2023.

Underlying inflation is expected rise only gradually, since it will take time for the economy to return to operating at full capacity, and therefore wages are expected to grow only moderately, the ECB said.

The GDP growth projection for this year was raised to 5 percent from 4.6 percent, citing a stronger growth figure for the second quarter.

Meanwhile, the outlook for next year was lowered to 4.6 percent from 4.7 percent. The growth forecast for 2023 was retained at 2.1 percent.

The ECB saw the risks to the economic outlook as broadly balanced, Lagarde said.

"If supply bottlenecks last longer and feed through into higher than anticipated wage rises, price pressures could be more persistent," Lagarde said in her introductory statement to the post-decision press conference.

"At the same time, the economic outlook could deteriorate if the pandemic worsens, which could delay the further reopening of the economy, or if supply shortages turn out to be more persistent than currently expected and hold back production."

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