This gap is the difference between our aim of an inflation rate below but close to 2% over the medium-term and our projection for inflation over that same horizon, based on our current monetary policy stance and the information on the state and evolution of the economy that we have access to today.
If the inflation gap widens, and the monetary policy stance remains unchanged, it follows that there is a “missing stimulus” to which we may need to respond. At its meeting on 22 January, the Governing Council assessed that two factors had come together which had led to a widening of this “inflation gap” and had hence rendered our stimulus insufficient.