Underlying inflation, which measures the rise in prices, excluding products with highly-variable prices (notably energy and fresh produce) and also public utility charges, after stripping out the impact of tax measures, rose at a slower twelve-month rate of 0.7%. France was thus the best performer of the euro area in this field, along with Germany, with twelve-month HICP growth of 1.7% in December 1999. Since the start of 1999, the Eurosystem - comprising the European Central Bank (ECB) and the eleven national central banks of the countries having adopted the euro as their currency - has been responsible for defining and implementing monetary policy. In accordance with the Maastricht Treaty, the primary objective of the single monetary policy is price stability. This is defined as a year-on-year increase in the HICP for the euro area of below 2%. The definition of this medium-term objective is the same as that adopted by the Monetary Policy Council for French monetary policy when the Banque de France was granted independent status a little more than six years ago. 1  BIS Review 55/2000  In order to achieve its main goal of price stability, the Governing Council of the ECB decided, as you know, to refer to two groups of indicators, or “pillars”, for European monetary policy: –  the first pillar is a prominent role for money, reflected by the choice of a quantitative reference value for growth in M3, the broad monetary aggregate for the euro area. This reference value has been set at 4.5%.
However, we can talk in terms of a radical change in the Swedish economy in one important respect with regard to the relationship between growth and inflation. Inflation expectations in Sweden seem to have stabilised around 2%, which indicates that the target for price stability has attained high credibility. During the 1970s and 1980s, inflation amounted to 8% on average. This means that wage-earners, landlords, central and local government and entrepreneurs now calculate with quite different nominal price increases than previously in their budgets and their pricing decisions. However, this is not an expression of a new economy but rather indicates a return to the conditions that existed in the first two decades after the Second World War. Developments during the Korean War clearly show the importance of low inflation expectations for the development of the economy. The well-based expectations made it possible to restore the economy to a rate of inflation of 3% a year after inflation had risen to 20%. The return to low inflation could take place without any dramatic restraint and without mass unemployment. Comparisons between this year’s wage development and wage development during the previous high inflation period are a strong illustration that high nominal wage increases do not have a positive correlation with real wage increases. While real wage increases this year are expected to total around 3%, wage earners have periodically experienced reductions in real wages in the period 1975 to 1995 and on average only slightly over a half per cent increase.