Thanks to the non-conventional monetary policies adopted by the Governing Council, especially its quantitative easing programmes, the risks of deflation have thus dissipated. Moreover, the euro area has been hit by an energy shock of extraordinary magnitude, far greater than the oil price shocks that hit the world economy in the 1970s.
The ensuing marked rise in actual inflation cannot be ignored by the central bank: the risk that it could cause an increase in inflation expectations and in turn lead to a futile and damaging spiral between prices and wages should be countered decisively. It is therefore crucial, at this stage, to carefully monitor inflation expectations and the dynamics of wages and profits.