Sensitivity analysis by ECB staff underlines the risks we would face if firms tried to defend their margins instead. For instance, if firms were to regain 25% of the lost profit margin that our projections foresee,  inflation in 2025 would be substantially higher than the baseline – at almost 3%.
So, faced with a more persistent inflation process, we need a more persistent policy – one that not only produces sufficient tightening today, but also maintains restrictive conditions until we can be confident that this second phase of the inflation process has been resolved. The policy stance What does this imply for our policy in concrete terms?