In addition, faster growth in nominal wages – reflecting some catch up to the price level increases that have already occurred and also the improvement in the labour market – is also a significant contributor to higher and more persistent inflation, while exchange rate depreciation has also added to price pressures.
At the same time, the staff projections continue to see a steep reduction in inflation over the projection horizon. While core inflation is expected to remain at elevated levels until the middle of 2023, it is expected to decline thereafter as re-opening effects subside and as supply bottlenecks and energy input cost pressures ease.