Lagarde: Inflation Risks To The Upside, Growth Risks To The Downside

Lagarde continues her opening commentary, focusing on risks to the inflation and growth outlooks:

• Market-based indicators suggest that oil prices should moderate in the near term while gas prices will remain extraordinarily high. Whilst supply bottlenecks have been easing, these continue to feed through to consumer prices, as is recovering demand in the services sector.
• The depreciation of the euro has added to build up of inflationary pressures. Price pressures are spreading across more and more sectors, in part owing to high energy costs. Measures of underlying inflation remain at elevated levels.
• Resilient labour markets and some catch up to compensate for high inflation are likely to support growth in wages. Wage dynamics remain contained overall. Most measures of longer term inflation expectations stand at around 2%, but recent above target revisions to some indicators require monitoring.
• Risks to growth are primarily to the downside, particularly in the near term. A long lasting war in Ukraine remains a significant risk to the economy, particularly if there is rationing of energy supplies. In such a scenario confidence could fall. A further deterioration in the global outlook would be a significant drag on euro area external demand.
• The risks to the inflation outlook are primarily to the upside with a further disruption to energy supplies being a particular risk. Over the medium term inflation could be higher than expected.