According to Klaas Knot, a member of the European Central Bank's Governing Council, the euro area faces the risk of higher-than-expected inflation due to supply interruptions and wage increases.
During a webinar on Thursday Knot said “Risks for headline inflation are again tilted to the upside,” adding that “Upside risks, in the short to medium term, are mainly linked to more persistent supply-side bottlenecks and stronger domestic wage-price dynamics.”
Investors appear to be taking the potential of rising inflation seriously, according to the Dutch governor, and "this is good news" after a period of losses and the fear of deflation.
Knot's remarks come before of a key discussion at the ECB as it prepares for a post-pandemic stimulus transition at a time when worldwide rivals are more concerned about the risk of a price spiral and are withdrawing assistance. In December, the bank is anticipated to announce the next stages in its emergency bond-buying program.
Additional Comments From Knot
Present baseline estimates are consistent with ending the PEPP in March 2022.
The Eurozone inflation outlook is back on track.
I am confident that the pre-pandemic inflation gap in our macroeconomic projections will close by the end of 2021.
ECB is considering options to make the move out of the PEPP.