Euro zone inflation not as transitory as thought: ECB’s de Guindos

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FRANKFURT, Jan 13 (Reuters) – The euro zone’s inflation spike is not as transitory as earlier thought and price growth this year is at risk of exceeding projections, European Central Bank Vice President Luis de Guindos said on Thursday.

Inflation hit 5% last month, the highest on record for the 19-country currency bloc, but the ECB expects it back under its 2% target in both 2023 and 2024, even without policy tightening, as one-off pressure ease.

“Inflation is not going to be as transitory as forecast only some months ago,” de Guindos told a UBS event. “The assessment of risk for inflation is moderately tilted to the upside over the next 12 months.”

He added that energy costs are likely to remain elevated while supply-side bottlenecks continue to exert upward pressure on prices.

Still, over the longer term, risks are still seen balanced, de Guindos said, adding that 2023 and 2024 inflation are both seen just below the ECB’s 2% target.

Some policymakers are more sceptical, however, and warned that inflation could stay above target even further out as wage policy is likely to adjust to higher price growth, making the surge more durable.

Although energy prices increased in recent weeks, de Guindos said this did not fundamentally alter the inflation picture.

“They do not affect much the projections we produced 3 weeks ago,” he said.

The Omicron variant of COVID-19 is also unlikely to significantly change the growth outlook, for now, he said, adding that European economies have adapted to living under the pandemic.

(Reporting by Balazs Koranyi and Francesco Canepa Editing by Peter Graff, Alexandra Hudson)

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