European Central Bank sees higher inflation this year, growth outlook little changed

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The European Central Bank raised its inflation projection for 2021 on Thursday after a surge in prices at the start of the year and slightly increased its growth forecast even though lockdowns to halt the COVID-19 pandemic have been extended.

In what it describes as the baseline scenario, the ECB expects GDP to expand by 4.0 percent this year rather than the 3.9 percent seen in December.

Inflation is expected to average 1.5 percent, above the 1 percent seen earlier, ECB President Christine Lagarde said.

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But projections over the longer term were little changed, indicating that this year’s deviations are mostly caused by one-off factors that do not otherwise alter the broader picture.

Lagarde said risks to the economic outlook had become more balanced but remained skewed to the downside in the short term because of the pandemic and measures to contain it. She said temporary factors and energy price inflation would see higher inflation than previously expected this year and next.

Inflation is still seen below the ECB’s nearly 2 percent target for years to come, however, while the economy will need several years to grow back to its pre-pandemic level.

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