The risks to the inflation outlook are tilted to the upside, especially in the near term.

A prolonged war in the Middle East could lead to a larger and longer lasting upward shift in energy prices than currently expected, raising euro area inflation further.

This could be reinforced and become more persistent if inflation expectations and wage growth were to rise in response.

If the energy price increase were to spill over to non-energy inflation to a larger extent than assumed in the baseline or if the war disrupted global supply chains more broadly.

Ongoing trade tensions could also give rise to more fragmented global supply chains, curtail the supply of critical raw materials and tighten capacity constraints in the euro area economy.

By contrast, inflation could turn out to be lower if the economic repercussions of the war in the Middle East proved to be more short lived or if indirect and second round effects proved less pronounced than currently expected.