It would be extremely dangerous to let inflation expectations deanchor… … That means letting them fall significantly below the target of 2%... … Right. Not under any circumstances we should let that happen. If that happens it would be extremely difficult to regain control of inflation expectations. They are a main factor for future inflation.
On the other hand, the final results for the second quarter have been very disappointing. This increases the slack in the economy with downward pressure on inflation. What really matters are medium- to longer-term inflation expectations. Are they still “anchored”? They are starting to get de-anchored for horizons up to 4 years. These figures declined significantly during the past two months.