ECB head sees upside risk in inflation, says COVID variants could drag on growth

ANKARA

European Central Bank (ECB) President Christine Lagarde said Thursday there is possible upside risk in inflation and new coronavirus variants could drag on growth.

"The future path of energy prices and the pace at which supply bottlenecks are resolved are risks to the recovery and to the outlook for inflation," Lagarde said in a press conference after the ECB kept interest rates unchanged in its December meeting.

"The upswing in inflation primarily reflects a sharp rise in prices for fuel, gas, and electricity," she noted.

Lagarde said inflation is expected to remain elevated in the near term, but the central bank anticipates it to decline during the course of 2022.

The ECB on Thursday revised up its 2022 inflation forecast to 3.2% from an estimate of 1.7% made in September.

Lagarde said the course of the coronavirus pandemic, under the recent developments of the spread of new variants, could become "a more persistent drag on growth."

"The pandemic is weighing on consumer and business confidence and the spread of new virus variants is creating extra uncertainty," she said.

The ECB has also lowered its real GDP growth expectation for the euro area to 4.2% for 2022 from the previous estimate of 4.6% made in September.