While price and wage-setting will contain a backward-looking element, especially after a supply-driven surge in inflation, it is important that the forward-looking component remains close to our inflation target in order to avoid an entrenchment of higher inflation in expectations amongst the public. So far, there has been no indication that expectations have become de-anchored from our inflation target.
This is true for both survey and market-based measures of longer-term inflation expectations. With regards to the transmission of monetary policy, the pass-through into financial conditions is well underway. Interest rates on loans to firms and households increased sharply since the beginning of 2022 (Chart 4).