While unlikely, an extreme scenario would see the entrenchment of disinflationary developments initiate a downward drift in the Phillips curve and unmoor inflation expectations. Empirically disentangling these factors is extremely difficult, so we need to be mindful of such considerations when discussing the relationship between economic slack and inflation developments, especially in an environment of uncertainty over the anchoring of inflation expectations. Our primary task as a central bank is to ensure that the reconnection of the real and the nominal sides of the economy – what I referred to before as the Phillips curve regularity eventually reasserting itself – occurs at a steady state rate of inflation that is consistent with our medium-term aim. We have not yet accomplished our mission, and so we must remain patient and persistent. In 2/3  BIS central bankers' speeches  light of this, the October monetary policy decisions were taken to preserve the favourable financing conditions that are still needed for a sustained return of inflation rates towards levels that are below, but close to, 2%. In particular, the recalibration of our asset purchases reflects growing confidence in the gradual convergence of inflation rates towards our inflation aim. 1 See, for example, the European Commission’s “European Economic Forecast – Autumn 2017”. 2 For more details, see the box entitled “The targeted longer-term refinancing operations: an overview of the take-  up and their impact on bank intermediation”, Economic Bulletin, Issue 3, ECB, 2017.
The so-called “U6 measure” captures unemployment, underemployment (meaning workers who would like to work more hours) and marginal attachment, namely those workers that are not competing very actively in the labour market, for example because they are not available to start a new job at short notice. This measure currently covers just below 18% of the labour force and is thus considerably higher than the unemployment rate.4 We are experiencing a solid and broad-based economic expansion that is contributing to a narrowing of the output and unemployment gaps. But there still appears to be a disconnect between growth and inflation. As slack in the economy continues to be absorbed, reflationary forces will gradually build up and the traditional Phillips curve relationship between inflation and the business cycle should eventually reassert itself. That being said, current estimates of the slope of the Phillips curve still appear to be flatter than in previous times, which could be interpreted as an indication that the relationship between economic slack and inflation has weakened. A mismeasurement of slack (because of structural changes in the labour market) or an unstable relationship between slack and inflation over time could be among the reasons. At the same time, this effect could also result from discrete parallel shifts in the Phillips curve. Such parallel shifts can arise due to temporary changes in wage and inflation mark-ups, or – more concerning from a central bank’s perspective – the incipient dislodging of inflation expectations.