If everyone is confident that our objective is just under two percent inflation, then this is included in contracts and especially in wage negotiations, for example. Already now we are seeing some wage negotiations taking place based on the lower inflation rate and not on our almost two percent. This shows that ‘inflation expectations’ are still fragile. But why “almost two percent"?
Imagine if we defined price stability as zero percent inflation in the euro area. That would mean prices would be rising in some euro area countries, but falling in some other euro area countries. It would mean that as soon as some products became more expensive, the prices of others would have to fall. Otherwise you cannot achieve an average of zero.