compared with our expectations in december, risks to the inflation outlook are tilted to the upside, particularly in the near term. if price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher. in a few weeks, the march ecb staff projections will provide an updated assessment, taking the most recent data into account. this will help the governing council better appraise the implications of the surprisingly high december and january inflation figures for the medium - term outlook. in particular, we will carefully examine how higher energy prices will transmit through the economy and affect the outlook overall. two channels could be at play, pulling inflation dynamics in different directions. on the one hand, rising energy costs can drive up prices directly, by increasing the cost of production, as well as indirectly, by having second - round effects on wages. on the other hand, they can have a negative impact on the incomes of households and the earnings of companies, thereby reducing economic activity and dampening the inflation outlook. in the past, the euro area has been particularly vulnerable to the second channel, as surges in energy prices weakened the spending power of households, and reduced inflation over the medium term. obviously, in our assessment of the inflation outlook, we have to bear in mind that demand conditions in the euro area do not show the same signs of overheating that can be observed in other major economies. this increases the likelihood that the current price pressures will subside before becoming entrenched, enabling us to deliver on our two per cent target over the medium term. indeed, while moving up over recent months, indicators of longer - term inflation expectations are consistent with this expectation. survey - based measures point to inflation returning to two per cent by 2023 and remaining close to this level thereafter ; and market - based indicators stabilise around levels somewhat below two per cent. the solid anchoring of long - term inflation expectations in the euro area is a reassuring development, coming after a long period when they were subdued. 2 / 3 bis central bankers'speeches to sum up, the euro area economy has continued to recover, although growth is expected to remain subdued in the first quarter. while the outlook for inflation is uncertain, it is likely to remain elevated for longer than previously expected, but to decline in the course of this year. in our meeting last week, we confirmed the decisions we took in december. accordingly, we will continue reducing the pace of our

we last met in november, i stated that growth momentum was moderating. indeed, recent data confirm that quarterly growth slowed to 0. 3 per cent in the final quarter of 2021, which still allowed gross domestic product ( gdp ) to recover to its pre - pandemic level. the moderation in growth momentum has resulted mainly from the rapid spread of the omicron variant. the associated containment measures have dampened activity, particularly in consumer services such as travel, tourism, hospitality and entertainment. the current pandemic wave and associated restrictions are likely to continue to have a negative impact on growth at the start of this year. two other factors which we discussed at the previous hearing − namely supply bottlenecks and high energy costs − are also expected to dampen economic activity in the near term. 1 / 3 bis central bankers'speeches however, the economic impact of the current pandemic wave appears to be less damaging to activity than previous ones. moreover, the aforementioned bottlenecks will still persist for some time, but there are signs that they may be starting to ease. this will allow the economy to pick up strongly again later this year. inflation has risen sharply in recent months and it further surprised on the upside in january, with the rate increasing to 5. 1 per cent from 5. 0 per cent in december. inflation is likely to remain high in the near term. energy prices continue to be the main reason for the elevated rate of inflation. their direct impact accounted for over half of headline inflation in january and energy costs are also pushing up prices across many sectors. food prices have also increased, owing to seasonal factors, elevated transportation costs and the higher price of fertilisers. in addition, price rises have become more widespread, with the prices of a large number of goods and services having increased markedly. financing conditions for the economy have remained favourable. while market interest rates have increased since december, bank funding costs have so far remained contained. bank lending rates to firms and households continue to stand at historically low levels. turning to the risk assessment, we continue to see the risks to the economic outlook as broadly balanced over the medium term. uncertainties related to the pandemic have abated somewhat. at the same time, geopolitical tensions have increased and persistently high costs of energy could exert a stronger than expected drag on consumption and investment. the pace at which supply bottlenecks are resolved is also a further risk to the outlook for growth and inflation.