uncertainty. this means that gauging risks to the inflation outlook becomes particularly important. overall, these risks remain tilted to the upside. one major risk factor is upward surprises to energy prices due to scarce and uncertain supplies. this is especially the case in europe. and especially for natural gas, given the ongoing geopolitical risks. over a slightly longer horizon, there is another upside risk to inflation. government policies that aim to cushion the impact on households of the high energy prices may be inflationary to the extent that they do not merely target those people that lack the financial resources to pay the higher costs. and of course, there is the very real risk of second round effects, that i will come to later. * at the same time, growth is slowing down. according to the flash estimate, euro area real gdp grew by 0. 2 % q - o - q in the third quarter of this year. this is down from 0. 8 % in the previous quarter but slightly higher than expected by ecb staff in september. looking forward, according to ecb staff forecasts from september, growth is projected to decline further in the fourth quarter of 2022, then come to a standstill, and start recovering in the second quarter of 2023. incoming soft data since september suggest that the economic outlook has deteriorated further and that the risk of a recession has increased. so, what is weighing down on growth? there are at least four factors : high inflation, high uncertainty, rising interest rates, and the fading effects of the reopening from the great lockdown. slower growth is necessary to bring inflation down, but it is far from certain that slower growth or a mild recession alone will be enough to drive inflation back to levels around 2 %. there are two main arguments for being resolute about pursuing price stability. and by being resolute i mean that we will persist in our efforts until we have reached our goal, no matter how difficult this proves. first, in an uncertain environment in which inflation is persistently high and continuously underestimated, high inflation may get entrenched in people ’ s minds. let me explain. the longer inflation remains above target, the greater the risk that it will affect firms ’ and households ’ expectations and economic decisions. these second - round effects would reflect a switch from a regime of “ rational inattention ” in which firms and households largely ignore inflation numbers, to a regime of “ rational attention ” with high inflation firmly on their

speech klaas knot - in resolute pursuit of price stability 18 november 2022 general © dnb “ for a long time, inflation was hardly on anyone ’ s mind. but today, it has become a key issue for everyone. ” in his keynote address at the 32nd frankfurt european banking congress, klaas knot spoke about the ecb ’ s resolute pursuit of price stability. datum : 18 november 2022 spreker : klaas knot locatie : 32nd frankfurt european banking congress, frankfurt in the run - up to any big football tournament, newspapers, podcasts, and tv presenters overload you with facts and figures, performance levels and prognoses. but amidst all those stats and stories, they usually forget one golden rule : in the end, germany always wins. at the ecb, we play a different ballgame. but just like in football, to beat the current economic challenges, to normalise inflation, and to safeguard the sustainable welfare of people in europe, we team up. we defend and strike together. and we won ’ t forget the golden rule of our game : in the end, we only win if all of us win. for a long time, inflation was hardly on anyone ’ s mind. but today, inflation has returned with a vengeance and has become a key issue for everyone. three years ago, in 2019, headline inflation in the euro area stood at a seemingly unshakable 1 %. a year later, it even dipped below zero. a mere year ago, as the economy rebounded from the pandemic, headline inflation approached an unprecedented 5 %. and yesterday, for the first time in its history, eurostat reported double - digit headline inflation of 10. 6 %, and even more worrisome from our perspective, core inflation ( excluding energy, food, alcohol & tobacco ) reached an all - time high at 5. 0 %. what is driving this inflation surge? of course, there are energy prices and one - off factors ( figure 1 ). but the persistence of high inflation – both headline and underlying – has surprised many experts. ecb forecasters, markets and analysts have kept revising up their inflation forecasts and now expect inflation to peak in the fourth quarter of 2022 ( figure 2 ). it is projected that inflation will only return towards the ecb ’ s 2 % target in the course of 2024. these forecasts are surrounded by unusually high levels of