Lagarde: Growth And Inflation Risks Have Become More Balanced

Lagarde turns to the balance of risks and notes that those to growth and to inflation have become more balanced. The inflation commentary has spurred a dovish market reaction:

• The risk to the economic outlook has become more balanced. The Russian war in Ukraine is a downside risk. There could also be an additional drag if the world economy weakened more sharply than expected. The recovery would face obstacles if the pandemic intensified.
• However, the energy shock could fade away faster than anticipated and euro area companies could adapt more easily to the challenging international environment.
• The risks to the inflation outlook have become more balanced. Pipeline inflation pressures are an upside risk. A stronger than expected rebound in China could boost commodity prices and foreign demand. A persistent rise in inflation expectations above target, or higher than anticipated wage rises, could raise inflation higher over the medium term.
• On the downside, the recent fall in energy prices, if it persists, may slow inflation more rapidly than expected. This downward pressure could then weaken underlying inflation.