KOF Monetary Policy Communicator, December 2021

The Governing Council noted progress towards its medium-term inflation target permitting a step-by-step reduction in the pact of its asset purchases over the coming quarters. Nonetheless, the ECB stresses the need for an ongoing accommodative monetary policy stance to stabilize inflation at 2% over the medium term. The key ECB interest rates as well as its forward guidance remain unchanged.

According to Eurostat, Euro area annual HICP inflation was 4.9% in November. The ECB expects inflation to remain elevated in the next months, but to decline gradually in the course of next year. The recent upswing of inflation is primarily driven by rising energy prices, a demand outpacing constrained supply in some sectors and the reversal of the temporary VAT reduction in Germany. Hence, the ECB’s inflation forecast will remain above two percent for most of 2022, but price pressures from supply bottlenecks will subside gradually and energy prices will stabilize.