policy stance should react to the challenges these shocks create ; and how we can preserve the transmission of this stance throughout the euro area. the shocks hitting the euro area economy broadly speaking, inflation in the euro area is being driven by two different types of shock. first, the original source of inflation is an extraordinary series of external shocks. global supply chain disruptions coupled with surging global demand have pushed up prices sharply for industrial goods along the pricing chain. [ 1 ] mismatches between supply and demand in global energy markets have led to rising energy prices for the euro area. and the russia - ukraine war has amplified both of these factors while also driving up global food prices. given its energy dependence, the euro area is experiencing these shocks acutely. [ 2 ] the current levels of food and industrial goods inflation have not been seen since the mid - 1980s. [ 3 ] and the increase in the relative price of energy in recent months is much higher than the individual spikes that occurred in the 1970s. together, energy, food and industrial goods account for around 80 % of the overall inflation rate seen since the start of this year. the second factor driving up inflation – and one which has intensified in recent months – is the recovery in internal demand as the economy has reopened after the pandemic. spending is rotating from goods back to services as restrictions are being lifted, while pent - up demand for tourism and leisure activities is proving unexpectedly strong. this rebound in spending has seen services inflation rise to 3. 5 % in may – the highest rate since the mid - 1990s – with the highest price increases in contact - intensive sectors. these shocks, in particular the surge in energy prices, are driving up short - term inflation to very high levels. they are also leading to significant upward revisions to our medium - term inflation forecasts. the june eurosystem staff projections saw inflation above 2 % for the whole projection horizon, converging back to slightly above our medium - term target in 2024. the persistence of inflation but the size and complexity of these shocks are also creating uncertainty about how persistent this inflation is likely to be. we are not facing a straightforward situation of generalised excess demand or economic overheating, in which case the trajectory of medium - term inflation would have been clearer. despite the bounceback in services, private consumption in the euro area is still more than 2 % below its prepandemic level. and investment remains subdued. although there have been some signs of above -

in line with our supervisory expectations. given the difficulties to assess the exposure to and the impact of climate - related risk we have not assigned to this exercise quantitative objectives, beyond providing participants and us with a first bottom up assessment of their exposure, based on common assumptions, assessment which appears to be moderate by 2050. in particular, we didn ’ t set as an objective to assess the extent to which the current regulatory framework is sufficient and well suited to absorb climate - related risks, and whether additional supervisory capital requirements would be legitimate. models, metrics and methodologies developed so far are still in their infancy and the data too sparse to allow drawing firm conclusions about the loss absorption capacity of current capital levels. nonetheless, we already see at the acpr these exercises as prudential tools, as they have proved helpful to us at incentivizing financial institutions to give the proper level 1 / 3 bis central bankers'speeches of priority and resources to the monitoring and management of climate - related risks. the publication in november 2020 of the ssm guide on climate and environmental - related risk was driven by the same logic and the preparation underway of an ssm stress test should provide an additional step at european level towards more supervisory scrutiny in the process of fully integrating these risks into the day - to - day risk management of banks. 2 - there are also a few lessons that can be drawn from our experience from a methodological standpoint, as the use of such scenario analysis by supervisors is likely to be repeated and is likely to spread among supervisors. i would like to highlight two of them. first, tremendous progresses have been made in the domain of climate risk scenarios under the aegis of the network of central banks and supervisors for the greening of the financial sector, the ngfss. thanks to this “ coalition of the willing ”, gathering today more than 90 central banks and supervisors across the world, high level scenarios were published in july last year, updated a couple of weeks ago by a set of 6 scenarios. this set of global reference scenarios provide a good basis for financial authorities. of course, the ngfs should continue to develop and refine those scenarios. however, there will remain the need to tailor those scenarios to the circumstances of each jurisdiction, for instance specifics of their climate policies, or more precise meteorological data at the national level. in addition, st may legitimately differ along other methodological dimensions. a case in point is the use or not of a dynamic balance sheet assumption