Mervyn King described this as ‘trust building by talk’.14 That was very much the goal of communication when inflation targeting was in its infancy. Similarly, communication was a mechanism to deliver accountability. As I noted earlier, inflation targeting often went hand in hand with greater central bank independence. The quid pro quo for greater independence was greater accountability.
So for the time being, survey evidence suggests that inflation expectations of households and firms in Germany are somewhat less anchored than, say, a year ago. Accepting the difference in levels compared to professional forecasters that I alluded to before, the increase is worrying.