KOF Monetary Policy Communicator, March 2021

At today’s meeting, the Governing Council decided to keep the key ECB interest rates unchanged. To preserve favorable financing conditions, purchases under the PEPP over the next quarter will be conducted at a significantly higher pace than during the first months of this year.

According to Eurostat, Euro area annual HICP inflation was 0.9% in January and February 2020, clearly up from December. The strong increase in headline inflation reflects a number of temporary idiosyncratic factors. The ECB named the end of the temporary VAT rate reduction in Germany, delayed sales periods in some euro area countries and the impact of the stronger than usual changes in HICP weights for 2021, as well as higher energy price inflation as contributing factors. The ECB expects headline inflation to increase in the coming month. Overall underlying price pressures are expected to remain subdued reflecting low wage pressures and the past appreciation of the euro. Compared to the economic projections from December, the inflation outlook was revised upward because of the temporary factors for 2021 and 2022. Eurosystem staff macroeconomic projections foresee inflation at 1.5% in 2021, 1.2% in 2022 and 1.4% in 2023 (December projections: 1.0% in 2021, 1.1% in 2022 and 1.4% in 2023).