High inflation to persist in coming months, says central bank head

26 Oct 2021

Comparatively high inflation rates will likely persist in Spain over the next few months, despite the underlying motives being only temporary, says Governor of the Bank of Spain, Pablo Hernandez de Cos.

Soaring energy prices may continue throughout the winter as demand increases, whilst the storage levels of oil and gas are relatively now. Nevertheless, De Cos cautioned that the longer the inflation pressure continues, it is more likely high inflation will become permanent, Reuters reports.

“All these elements introduce a noticeable level of uncertainty about the duration of the current episode of rising costs of production,” he announced during a presentation to the budget committee in parliament.

The impact of higher inflation can already be seen in yields demanded by investors on Spanish 10-year government bonds, which have edged up to 0.5% from Friday, compared to 0% at the start of the year, the Governor added.

However, the general consensus is that the European Central Bank will maintain its expansive tone for a “dilated period of time,” De Cos stated.

He went on to add that the present supply chain issues, higher energy prices and other developments may lead to a “significant downward” revision of the central bank’s forecast for the country’s economic growth this year, scheduled to be updated in December.

In September the Bank of Spain increased its growth forecast for 2021 by 0.1 percentage points to 6.3%. Yet only a few days later the National Statistics Institute revised Q2 growth steeply downward to 1.1% from the original 2.8% figure.

De Cos added that the Bank of Spain would have to revise its outlook to take the revised figure into account.

The growth outlook for next year, which the bank had recently increased to 5.9%, may also be downwardly revised in December, the Governor said, though it is “less clear” than for 2021.