Digital Euro and Inflation Outlook Analysis

As the process for agreeing on the legal framework for the digital euro

moves into its final stage,

we reiterate the importance of reaching agreement on the single currency

package as quickly as possible.

Fiscal responses to the energy shock should be temporary,

targeted, and tailored.

The risk, risks to the inflation outlook

are to the upside.

This is due in particular to the Middle East conflict and developments in Russia's

unjustified war against Ukraine.

The energy shock could intensify further, and its effects on other

prices and wages could be stronger than currently expected.

Gas prices, in particular, could increase in the event of

further supply disruptions or an unusually cold

winter coinciding with low storage levels.

The longer energy prices stay high, the more likely they are to

drive up broader inflation through indirect and second-round effects.

Renewed trade tensions could give rise to more fragmented global supply

chains,

curtail the supply of critical raw materials, and worsen capacity

constraints in the euro area economy.

Extreme weather events, potentially reinforced by

int-intensifying El Niño conditions and the unfolding

of, the unfolding climate and nature crisis more broadly,

could drive up food prices by more than expected.

By contrast, inflation could turn out to be lower

if ongoing

geopolitical conflicts were resolved sustainably or if

indirect or second-round effects from the recent energy price shock

proved less pronounced than anticipated.

More volatile and risk-averse financial markets could weigh on demand

and thereby lower inflation as well.

So in conclusion, the Governing Council today decided to

raise

the three key ECB interest rates by twenty-five basis points.

We are committed to setting monetary policy to ensure that inflation

stabilizes at our two percent target in the medium term.