I believe that these positive factors will be sufficient to offset weakness in other areas, such as net exports and fixed business investment that will continue to be adversely impacted by the still-strong dollar, weak foreign growth, and low energy and commodity prices. Putting this all together, I expect real GDP growth of about 2 percent in 2016, slightly below the average pace of growth in this expansion, but a bit above my estimate of the potential growth of the U.S. economy. If this materializes, then we should see some further reduction in the unemployment rate to around 4¾ percent – my estimate of the rate that I view as consistent with stable inflation over the long term. Turning to the outlook for inflation, on a year-over-year basis, both headline and core inflation have recently risen above the low levels that prevailed through most of 2015. Nevertheless, inflation still remains below the Federal Reserve’s 2 percent objective. As the FOMC noted in its March statement, this continued low inflation is partly due to declines in energy prices and non-energy import prices. Although energy prices have stopped falling and the dollar has stopped appreciating, earlier movements in these factors still appear to be weighing on inflation. A concern with this long period of low inflation is that it has the potential to reduce inflation expectations, which, in turn, would tend to continue to hold down inflation.
Our definition of price stability is that, in the medium term, prices have to grow less than but close to 2%. Inflationary expectations seen by various panels tell us that, over the next five years, inflation is seen at around 1.9%. I believe it is essential that citizens, savers and investors can trust in the fact that we will take all decisions necessary to ensure that inflation remains at these levels in the medium term. For three reasons: because it is our primary mandate; it is what citizens are asking us to do, and because it is a major contribution to sustainable growth and job creation in Europe. Where do you see risks of price increases? Further increases in oil and commodity prices and in goods and services prices due to past oil price increases. Also additional unexpected increases in administrative prices and indirect taxes. Then, more fundamentally, there are the so-called second-round effects, that is the risk of increases in wages and salaries that would derive from a loss of credibility regarding our capability in countering price increases. It is essential to intervene before these effects materialise. Do your concerns include the increase in VAT to be implemented in Germany in January? The increase in VAT in Germany, which was decided upon some time ago by the government, had already been incorporated in our analysis. BIS Review 87/2006  1  You were in Cernobbio, Italy, in early September. What was the mood among Italian entrepreneurs, politicians and economists?