KOF Monetary Policy Communicator, June 2021

At today’s meeting, the Governing Council decided to keep the key ECB interest rates unchanged. To avoid a premature tightening of 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 2.0% in May, up from 1.3% in March. The strong increase in headline inflation was mainly due to a strong increase in energy price inflation. The ECB expects headline inflation to increase towards autumn, reflecting mainly the reversal of the tempo-rary VAT reduction in Germany. Next year inflation is expected to decline again as temporary factors, including temporary supply constraints, fade out and global energy prices moderate. Overall, underlying price pressures are still expected to remain subdued reflecting low wage pressures and the past appre-ciation of the euro. Compared to the economic projections from March, the inflation outlook was revised upward because of temporary factors and higher energy price inflation for 2021 and 2022. Eurosystem staff macroeconomic projections foresee inflation at 1.9% in 2021, 1.5% in 2022 and 1.4% in 2023 (March projections: 1.5% in 2021, 1.2% in 2022 and 1.4% in 2023).