to have important negative effects on aggregate demand and, in turn, on the medium - term inflation outlook. while both monetary and fiscal policy may, in principle, counter the inflationary effects of energy costs, only the latter is able to directly influence these costs, also offsetting the loss in disposable income – at least in part and to the extent that it does not jeopardise debt sustainability – and limiting their impact on the economy. that said, the main response to what is essentially a tax cannot come from monetary policy, especially in the absence of a wage - price loop and with inflation expectations re - anchoring to the central bank ’ s objective. however, these issues emphasise the importance of swiftly designing a strategy, particularly at the european level, that, while in the short run helps to curb the unjustified spike in energy prices, on a more structural basis takes into consideration the issue of energy source diversification, energy storage and the identification of common resources for managing energy crises. it is a challenge that, today, goes hand in hand with the one posed by climate change and its resolution is essential also for avoiding uncontrolled and dangerous increases in the relative prices of fossil fuels. * * * the russian invasion of ukraine implies some very important changes in the economic outlook of the euro area and in the assessment of risks. further increases of energy prices will not only affect the short - term inflation outlook, but will also determine significant headwinds to domestic demand, while the announced sanctions and the sharp deterioration of russia ’ s economic conditions will weaken external demand and cause potential risks to financial stability. household and business confidence may be strongly shaken. this would result in a worsening of the prospects for gdp growth and, in turn, greater downside pressures to inflation in the medium - term, which could follow the large price increases observed so far and, perhaps, still to come over the rest of the year. the ecb staff has made some new baseline projections available – which were discussed by the governing council last week – built on the assumptions that disruptions to energy supplies and impacts on confidence are only temporary, while global supply chains are not significantly affected. overall, gdp growth is projected to 3. 7 per cent in 2022 and 2. 8 per cent in 2023, a downward revision of, respectively, 0. 5 and 0. 1 percentage points compared to december 2021. on the other hand, inflation is set to average 5. 1 per cent

2019q1 2019q3 2020q1 2020q3 2021q1 2019q1 2021q3 2019q3 source : us bureau of economic analysis and estimates based on eurostat data. note : dashed lines show pre - pandemic trends. 2020q1 2020q3 2021q1 2021q3 figure 3 contributions to consumer price index inflation ( monthly data ; percentage changes and percentage points ; year - on - year growth ) united states euro area source : us bureau of labor statistics and eurostat. figure 4 gas prices ( daily data ) 01jan2020 01jul2020 01jan2021 european gas ( ttf ; in euros ) 01jul2021 01jan2022 us gas ( henry hub ; in dollars ) source : refinitiv. figure 5 wages ( monthly data ; percentage changes ; year - on - year growth ) euro area negotiated wages us average hourly earnings source : us bureau of labor statistics and ecb. figure 6 longer - term inflation expectations ( per cent of respondents ) united states euro area median median 1. 5 2. 5 1. 5 2. 5 source : survey of professional forecasters, federal reserve bank of philadelphia, february 2022 ; survey of professional forecasters, ecb, february 2022 ; euro area data exclude one outlier. designed by the printing and publishing division of the bank of italy