KOF Monetary Policy Communicator, March 2022

The Governing Council changed the purchase schedule for its asset purchase programme (APP). Monthly net purchases under the APP will amount to €40 billion in April, €30 billion in May and €20 billion in June. Net purchases for the third quarter will be based on the future outlook for inflation.

According to Eurostat, Euro area annual HICP inflation was 5.8% in February up from 5.1% in January. This increase was primarily caused by higher energy prices, which also drive up inflation in many sectors. Food prices have also increased reflecting seasonal factors, elevated transportation costs and higher prices for fertilisers. There will be further price pressures for some food and commodity prices owing to the war in Ukraine. Price increases have become more widespread, but wage growth remains muted. This development is reflected in an upward revision of the ECB’s inflation projections: Eurosystem staff projections foresee inflation at 5.1% in 2022, 2.1% in 2023 and 1.9% in 2024. Longer-term inflation expectations have moved to two per cent helping headline inflation to settle durably at the ECB’s target when the economy returns to full capacity.

The war in Ukraine is a substantial upside risk for near term inflation. If price pressures feed through into higher wage rises or more severe supply-side restrictions, medium term inflation could also be higher. However, if demand were to weaken over the medium term, this could also lower pressures on prices.