This raises the risks that first round effects from higher energy and food prices eventually turn into second round effects. The longer inflation is unacceptably high, the larger the risk that inflation expectations adjust in a way that puts medium-term price stability at risk.
[21] According to ECB staff analysis, higher perceived inflation appears to have a substantial impact on households’ inflation expectations, and this impact has been rising (Slide 14, left-hand side). As a result, inflation expectations of households have been on a notable upward trend, and a significant share of survey respondents expect a sustained period of high inflation (Slide 14, right-hand side).