Euro Area Faces Risk of Prolonged High Inflation, Urgent Action Needed
Headline inflation in the euro area rose above three percent due to higher energy prices in 2021. Factors like fiscal stimulus and pent-up demand only have temporary effects on inflation. Unemployment's impact on inflation is less severe than expected. The main risk for prolonged high inflation is a change in inflation expectations leading to a wage-price spiral. The ECB needs to monitor these expectations closely to maintain credibility.