We define price stability as an inflation rate of below, but close to, 2 per cent over the medium term. [xxiv] Price stability enhances economic growth and welfare by ensuring that households and firms can make consumption and investment decisions without the uncertainty of volatile prices. The adverse economic developments that I described earlier affect inflation.
Since some global imbalances and vulnerabilities remain, the European economy continues to need a degree of monetary policy support. This is a balancing act, since we must ensure the sustainable convergence of inflation to our definition of price stability, while simultaneously protecting the on-going recovery of employment and the repairing of balance sheets.