Faced with a world that is changing faster than any of us could have imagined, we need to be both focused on our goal and robust in our strategy to achieve it. 1. Lagarde, C. (2022), “Monetary policy in a high inflation environment: commitment and clarity”, lecture organised by Eesti Pank and dedicated to Professor Ragnar Nurkse, Tallinn, 4 November. 2. This is visible, for example, if one compares the persistent and common component of inflation (PCCI) and the PCCI excluding energy. The former has been declining strongly since the summer of last year, whereas the PCCI excluding energy has only stabilised. 3. For an explanation on different measures of underlying inflation, see Ehrmann, M., Ferrucci, G., Lenza, M. and O’Brien, D. (2018), “Measures of underlying inflation for the euro area”, Economic Bulletin, Issue 4, ECB and ECB (2021), “Inflation measurement and its assessment in the ECB’s monetary policy strategy review” Occasional Paper Series, No 265, September. 4. Germany, France, Italy, Spain, the Netherlands, Austria and Greece. 5. Defined as those items in the core inflation basket for which wages account for more than 40% of input costs. 6. According to the labour force survey, the labour force has increased by 2.2 million since the start of last year and remains well above pre-pandemic levels, due to the rising participation of foreign workers (+1.3 million), women and older workers. 7. Employment growth in the public sector has accounted for about half of total employment growth since the end of 2019. 8.
What we will have to monitor carefully in the weeks and months to come is whether there is a further strengthening of this pass-through. If, for example, banks start to apply a larger “intermediation wedge” – meaning that at any level of the base rate they demand a higher compensation for the perceived risk they are taking on when lending – then pass-through will become stronger. So, we will be paying close attention to a range of indicators of credit availability and credit pricing, such as the monthly data on money and credit flows, our bank lending survey and our survey on access to finance for small and medium-sized enterprises. While more restrictive credit conditions are part of the mechanism by which our tightening ultimately reins in excess price pressures and brings inflation back to target, we will make sure that the process will be orderly throughout. Conclusion Let me conclude. Voltaire said “Uncertainty is an uncomfortable position. But certainty is an absurd one.” Faced with new and overlapping shocks, we have no choice today but to deal with uncertainty. But the public can be certain about one thing: we will deliver price stability, and bringing inflation back to 2% over the medium term is non-negotiable. We will do so by following a robust strategy that is data-dependent and embeds a readiness to act, but that does not entertain trade-offs around our primary objective.