High energy and commodity prices and supply bottlenecks have driven strong inflation in the euro area and higher inflation differentials between euro area countries.

Persistent inflation differentials may lead to external imbalances. 

High inflation has spilled over into increasing unit labour costs (ULCs) and unit profits in many euro area countries. 

Current account developments suggest little progress in the unwinding of imbalances.

Overall, changes in price competitiveness since the pandemic appear to have neither aggravated nor further unwound external imbalances.