Inflationary expectations threaten eastern EU recovery

Significance

Supply bottlenecks and higher energy prices have driven up prices. The OECD reported 4.6% annual inflation in September, and 18.9% for energy. In the EU, annual inflation reached 4.1% in October, from 3.4% in September, according to Eurostat’s flash estimate. Inflationary pressures could prove short-lived with inflation returning to normal next year, but eastern EU central banks are taking precautions.

Impacts

• A severe fourth wave of the pandemic and continued trade bottlenecks globally in 2022 could threaten stability.
• Investment could focus on expanding new sectors to lower EU-11 economies’ carbon intensity and diversify supply chains.
• Significant monetary policy divergence could delay euro adoption in the EU-11.