With interest rates at the lower bound, both the tools and the communication of monetary policy have to change. Asset purchases become the logical next step to expand the monetary policy stance; and enhancing transparency becomes the logical way to steer expectations and ensure accountability in an unprecedented new environment.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 2.2% in December 2012, unchanged from November and down from 2.5% in October and 2.6% in August and September. On the basis of current futures prices for oil, inflation rates are expected to decline further to below 2% this year.