inflation dynamics, in line with our forward guidance, before they warrant a more fundamental reassessment of the medium - term inflation outlook. such patience may lead to inflation outcomes being moderately above our aim for a temporary period of time. this will be a necessary and proportionate requirement to set the conditions to escape low inflation. 1 for a discussion of the march 2021 staff projections, see lane, p. r. ( 2021 ), “ inflation dynamics during a pandemic ”, ecb blog post, frankfurt am main, 1 april. 2 changes in consumption weights imply some volatility in the inflation profile in 2021 but, on average over the year, they are expected to have only a small downward impact on hicp inflation. 3 pandemic - related upside potential to inflation may interact with the unwinding of previous and current structural disinflationary forces, such as a potential retreat from globalisation and an ageing society. see goodhart, c. and pradhan, m. ( 2020 ), the great demographic reversal : ageing societies, waning inequality, and an inflation revival, palgrave macmillan, london ; haldane, a. ( 2021 ), “ inflation : a tiger by the tail? ”, a pre - recorded speech given online. 4 see ecb ( 2017 ), “ what can recent developments in producer prices tell us about pipeline pressures? ”, economic bulletin, box, issue 3. 5 bobeica, e., ciccarelli, m. and vansteenkiste, i. ( 2019 ), “ the link between labor cost and price inflation in the euro area ”, working paper series, no 2235, ecb, february. 6 as containment measures are still in place, additional excess savings are likely to have accumulated in, and to rise beyond, the second quarter. 7 see european commission ( 2021 ), “ special topic : will consumers save the eu recovery? – insights from the commission ’ s consumer survey ” in european business cycle indicators, european commission technical papers, no 047, april ; and fisher, j. d., johnson, d. s., smeeding, t m. and thompson, j. p. ( 2020 ), “ estimating the marginal propensity to consume using the distributions of income, consumption, and wealth ”, journal of macroeconomics, vol. 65. 8 see batini et al. ( 2021 ), “ building back

and the euro area ( right chart slide 11 ). upside surprises to inflation have coincided with a broader underprediction by market analysts of the euro area economy ’ s ability to sustain demand and profits in the presence of social distancing measures, showing up in a rare persistence of positive surprises ( slide 12 ). looking ahead, further upside potential will, to a large extent, depend on the price elasticity of demand and hence the pricing power of firms. after a long period of weak profits, many firms in the services sector may see the marked pickup in demand as an opportunity to recoup foregone profits. many services prices today remain below the levels that would likely have prevailed in the absence of the pandemic. transport prices, for example, fell throughout most of last year, which was an unprecedented phenomenon ( left chart slide 13 ). efforts to repair impaired balance sheets may upend the elasticities underpinning the predictions of our models. price level normalisation may go hand - in hand with a stronger and faster pass - through of higher input prices to final consumer prices. 4 / 9 bis central bankers'speeches in the past, there have often been substantial lags in the pass - through of pipeline pressure. ecb staff analysis finds, for example, that it usually takes one year or more for cost - push shocks in intermediate goods prices to pass through to hicp inflation ( right chart slide 13 ). 4 surveys, however, signal that a historically large share of companies is raising output prices today ( left chart slide 14 ). many firms also expect prices to continue to rise in the near term. two factors might cause firms to frontload and strengthen the pass - through to consumer prices at present. one relates to firms ’ state - contingent pricing behaviour. empirical evidence suggests that firms are more likely to pass through cost - push shocks in an environment of rising demand. 5 consumers being willing to accept higher prices in light of substantial excess savings might reinforce this channel. ecb staff estimates that the stock of accumulated excess savings amounted to €540 billion in the first quarter of this year, or 7. 4 % of annual disposable income in 2019. 6 the other factor relates to non - linearity. research by goldman sachs finds that, when cost pressures are within the historical norm, the pass - through of input costs to output prices is typically low and short - lived in the manufacturing sector ( right chart slide 14 ). but at times of significant