In June, the Council concluded that the conditions for raising interest rates set out in the forward guidance had been met, and therefore announced its intention to raise rates in July and again in September. In July, it decided to raise the three official ECB interest rates by 50 basis points, a larger increase than had been signalled in June, based on its updated assessment of inflation risks, bringing the deposit facility rate to 0%, thus abandoning negative territory for the first time since 2014. It was also decided to reinforce the support for the effective transmission of monetary policy across the euro area by approving the Transmission Protection Instrument (TPI). Under the TPI and subject to the eligibility criteria, the Eurosystem will be able to make secondary market purchases of securities issued in jurisdictions experiencing a deterioration in financing conditions not warranted by country-specific fundamentals, to counter risks to the transmission mechanism to the extent necessary. The scale of TPI purchases will depend on the severity of the risks facing monetary policy transmission. In September, the Governing Council decided to increase the ECB's official interest rates by an unprecedented 75 bps, the largest increase in the history of the euro, with the intention to continue raising interest rates at subsequent meetings in order to moderate demand and counter the risk of a persistent increase in inflation expectations. 5  https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Unemployment_statistics  4  In the financial markets, the process of monetary policy normalisation has been reflected in a significant increase in market interest rates.

Nevertheless, whether or not these reserves prove sufficient will depend on the weather conditions this coming winter, and on Europe’s ability to replace them as and when they are consumed. In short, the inflation pressures we had been experiencing due to the reopening of economies after the pandemic, the supply-side bottlenecks and the higher commodity prices have been exacerbated by the conflict with Russia, leading to extraordinary and persistently high rates. According to Eurostat,2 euro area annual inflation is expected to rise to 10% in September. This means that average inflation during the third quarter stood at 9.3%, a figure somewhat higher than anticipated in the ECB's last forecast exercise (9.1%).3 More importantly, euro area inflation is expected to remain above 9% during the fourth quarter. The rise in energy and food prices is the main factor behind the high levels of inflation in the region. The depreciation of the euro has also contributed to upward price pressures, particularly by increasing the price of commodity imports. Specifically, according to the flash estimate, the price increases over the past year in the energy and food components of the consumer price index stood at 37% and 11%, respectively, in September. These two components account for almost 70% of the increase in consumer prices in the euro area over the past year. Nonetheless, inflationary pressures are also spreading to the less volatile components of the consumer basket. Underlying inflation, which excludes food and energy consumer prices, is expected to hit 4.8% in September.