The persistence and intensity of inflationary pressures reflect a combination of various demand and supply factors. Notable among the demand factors are the relatively strong recovery in activity following its collapse in 2020 and the changing consumption patterns as a consequence of the pandemic and the measures adopted to contain it. Among the supply factors, the higher price of energy - with major strains in the gas market - and the disruption to global supply chains stand out. This high global inflation environment was also reflected in expectations of monetary policy normalisation and, in consequence, a moderate tightening of private-sector financing conditions. As at global level, the repercussions of the war for the Spanish economy are highly uncertain. Spain’s direct exposure to the countries at war is low. However, the invasion of Ukraine has also changed the economic environment and represents, at a time when the recovery from the pandemic remains incomplete, a new shock that can be expected to entail adverse consequences in the coming quarters for economic activity and inflationary pressures through various channels. Of these channels, the most important is probably commodity markets, including markets for both energy and non-energy commodities, in particular foodstuffs and metals, of which Russia and Ukraine are both significant global producers and exporters. Spain’s direct exposure to these imports is relatively low; for example, in 2019 only 6% of its total energy purchases from the rest of the world came from Russia. This percentage is much higher in countries such as Germany and Italy (17% and 22%, respectively).

The European Central Bank’s monetary policy Against the recent backdrop of high inflationary pressures, the European Central Bank (ECB) has continued with the normalisation of its monetary policy initiated last December. The Governing Council has explicitly expressed its willingness to maintain optionality, gradualism and flexibility in the conduct of monetary policy going forward. In the current climate of uncertainty, this is deemed necessary to allow us to respond to  incoming data to fulfil the ECB’s mandate to pursue price stability and to contribute to safeguarding financial stability. Indeed, the war in Ukraine is increasing the short-term upward inflationary dynamics, adding to the pressures generated by rising energy prices, bottlenecks and the normalisation of demand. The intensification and prolongation of these short-term inflationary pressures make it more likely that second-round effects will emerge and, therefore, that the inflation dynamics will become entrenched in the medium term. However, the war is having an adverse effect on economic growth, which could potentially be significant, particularly in the short term, in a setting where euro area GDP remains below its potential level. Overall, the upside risks to the inflation outlook have intensified, particularly in the near term. Although various indicators of long-term inflation expectations drawn from financial markets and surveys of professional forecasters put inflation at around 2%, there are preliminary signs, which will have to be monitored carefully, of those indicators being revised to above-target levels. In step with the normalisation of monetary policy, net purchases under the pandemic emergency purchase programme (PEPP) were discontinued on 31 March.