Looking further ahead, the December Eurosystem staff macroeconomic projections foresee annual HICP inflation to be between 2.0% and 2.2% in 2007, to then rise to between 2.0% and 3.0% in 2008, before moderating to a range of 1.2% and 2.4% in 2009. Compared with the September staff projections, the ranges for 2007 and 2008 have shifted upwards.
These staff projections are based on two key assumptions. The first is that recent oil and food price dynamics and their impact on HICP inflation will not have broadly-based second-round effects on wage-setting behaviour. The second key assumption is that growth in profit margins will moderate over the projection horizon.