Isabel Schnabel: Prospects for inflation - sneezes and breezes

Welcome address by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at the ECB and Federal Reserve Bank of Cleveland's "Inflation: Drivers and Dynamics Conference 2021", Frankfurt am Main, 7 October 2021.

Central bank speech  | 
14 November 2021
PDF full text
 |  13 pages

Euro area headline inflation is expected to have reached 3.4% in September according to the most recent flash estimate, its highest annual rate in more than a decade and notably above the ECB's new symmetric target of 2% to be attained over the medium term.

The recent rise in inflation, which was at least partly expected, has intensified the debate about the most likely future evolution of price pressures – in the euro area and elsewhere. It stands in sharp contrast to the developments observed over the past decade when structural headwinds prevented inflation from converging towards our target. The timing of this conference on inflation drivers and dynamics could therefore hardly be more fitting.

I will begin my remarks by briefly discussing how the current spike in inflation can in large part be attributed to temporary pandemic-related factors that are likely to dissipate in the medium term. Then I will turn to a more thorough discussion of the headwinds and tailwinds that may contribute to the evolution of inflation over the medium term, linking them to research that will be presented at this conference. My main focus will be on two important topics: inflation expectations and behavioural changes, for example regarding firms' price setting behaviour.