The increase in disagreement across households and the shift in the skewness of their expectations towards higher inflation were simply overlooked. This proved a costly mistake because they turned out to be a leading indicator of the period to follow when inflation expectations went completely adrift.
[Note 4] Aside from the risks of disanchoring inflation expectations, I have a second argument for being resolute in the pursuit of price stability. And this has to do with demand factors in recent inflation dynamics. Obviously, in the euro area context supply factors are highly relevant. But two types of evidence point to an additional, significant role of demand factors.