However, with growing evidence since the start of 2013, banks in large parts of the euro area started to respond to the funding challenges and the need to reinforce their capital structure by reducing their activities, in particular their loans to the real economy. The funding crisis had morphed into a trend which could lead to a widespread credit crunch.
The most recent forecast suggests that inflation will average 4.8% this year, but is then expected to rise to 5.6% and 5.4% respectively in the coming two years. This upward drift will not help in our quest to get inflation and inflation expectations anchored closer to the midpoint of the target range.