Perceptions of an erosion of purchasing power may be reinforced by price increases being concentrated in frequently purchased consumer goods and services (right chart slide 17).
Our judgment is that we have considerable excess capacity and that continued monetary stimulus is needed to close the gap and bring inflation sustainably to target. But we take account of our uncertainty around the degree of slack by considering a range of possible slack estimates in our deliberations. Another important building block of our policy framework is the neutral rate of interest.