Concerns are running high within the European Central Bank about the course of inflation, as “voices” about the risks that exist in the event that estimates of the course and dynamics of inflation turn out to be wrong are growing.

According to the ECB estimates, inflation would fall to 2,2% on an annual basis for this year, to 1,7% in 2022 and 1,5% in 2023. But reality seems to refute the bank, as inflation reached its highest level in 13 years in September, amid pressure from ever-increasing energy costs. According to preliminary Eurostat data, inflation reached 3,4% in the last month. This was the highest level since September 2008 when inflation stood at 3,6%.

The rise was driven higher by rising energy prices, which raised concerns among policymakers. Last month the price of gas increased by almost 400% since the beginning of the year. In addition, the upward trend in energy costs is not expected to stop any time soon, with energy analysts warning that market nervousness is likely to persist throughout the winter.

Government bond yields in Europe are rising, with the yield on the 10-year benchmark government bonds of the United Kingdom trading at 1,138%, the highest since May 2019, while the yield on the corresponding German bonds was -0,162%, the highest level since June.

Although ECB chief, Christine Lagarde, in early September appeared confident that inflationary pressures would be temporary and that the bank's 2% inflation target remained, some board members question both the forecasting reliability and the bank's readiness to respond in the event of a continuing upward inflation.

Analysts expect that ECB will issue more details on its monetary policy stance in December. The emergency pandemic program, known as PEPP, is expected to end in March and analysts predict a decline in the level of purchases coming on the last months of the program and that even if inflation stays higher for longer, the bank will stay true to its approach for the European economy.