In the labour market, if wage behaviour were based on excessive inflation expectations, a rate cut could justify such expectations and excessive increases in remunerations, which would be a development out of line with the growth slowdown ahead. Therefore, the timing of any policy easing has to be linked to inflation expectations, in particular longer-term ones.
It is important, however, that considerable practical progress is made in good time in dealing with a problem, which, while not imminent, is nevertheless unavoidable and needs to be addressed sooner rather than later. There are two key issues that need to be addressed. First, measures are urgently required to bring funding into line with the cost of state pensions.