How going green could result in higher inflation in eurozone

The EU wants to become the world’s first carbon-neutral region by 2050. Picture: BLOOMBERG

“In an environment of large excess savings and protracted supply disruptions, the energy transition may lead to inflation remaining higher for longer, thereby potentially raising the risks of inflation expectations destabilising,” Schnabel said in a speech to the American Economic Association on Saturday, adding that the ECB would need to act in such a scenario.

The ECB’s latest economic projections see inflation hitting 3.2% in 2022, before slowing to 1.8% in 2023 and 2024. Yet Schnabel said the technical assumptions on the energy component in those forecasts are “surrounded by significant uncertainty”. The EU wants to become the world’s first carbon-neutral region by 2050, an effort known as the green deal. It is a central pillar of the EU’s so-called next generation plan as well as its next seven-year budget.

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