Graph of Risks to the Inflation Projection (GRIP)
8th Situation Report 2011
The model simulation results captured in the GRIP (see below) represent the almost neutral balance of risks of the baseline scenario of the Inflation Report IV/2011 forecast. The exchange rate and inflation foster higher inflation and higher rates, whereas the initial state of the forecast, and particularly the new quarterly national accounts data, act in the opposite direction. The effect of domestic interest rates and external variables on the inflation and interest rate outlooks is neutral.
There are other risks and uncertainties outside the GRIP simulation. The key uncertainty in both directions is the future course of the euro area debt crisis. In Inflation Report IV/2011, this uncertainty was captured in an alternative scenario, towards which the external outlooks have moved partially, albeit with a lower outlook for external interest rates. Uncertainty also surrounds the quantification of how much the current food price inflation reflects early pass-through of the VAT change or other factors. The currently weaker exchange rate compared to the average for the course of the quarter represents an additional risk of higher-than-forecasted inflation and rates.
The Monetary and Statistics Department thus assesses the overall balance of risks to the Inflation Report IV/2011 forecast as being slightly inflationary.
