In this respect, in the opening months of this year, the Government set in train various regional and local government support mechanisms in order to smooth the refinancing of their existing debts or payment to trade creditors. The financing mechanisms agreed also require fulfilment of adjustment plans. It is now crucial to insist on strict compliance so that this type of aid does not provide inappropriate incentives. The consolidation strategy must, finally, be completed while keeping in mind the mediumand long-term factors affecting public finances, particularly those deriving from the pressure  6  BIS central bankers’ speeches  exerted by population ageing on certain items of expenditure. In this connection, following the enactment in July 2011 of the Social Security Reform Law, an appropriate definition of sustainability is needed as soon as possible so that the system’s parameters may be automatically adapted to demographic changes. In short, the current budgetary imbalance has become one of the main obstacles to growth of the Spanish economy. Correcting it is urgent and unavoidable. What is thus needed is a fiscal adjustment strategy based on commitments made at European level. This strategy has to be accompanied by a strengthening of the national budgetary framework, as reflected in the constitutional reform, and by the application of the medium and long-term reforms that enable the challenge of population ageing to be addressed.
By contrast with extrinsic drivers of persistence, greater intrinsic inflation persistence is something that monetary policy can – and should – address. Drivers of inflation persistence At this point, I will focus on one specific inflationary shock that we have recently faced, namely the significant rise in imported energy prices stemming from Russia’s invasion of Ukraine and its implications for European wholesale natural gas prices. [12] Once we focus on intrinsic inflation persistence, by nature we have to focus on a specific shock. It is the change of economic responses to that shock – in particular, changes in price and wage setting behaviour – that determine how the intrinsic persistence of headline inflation will evolve. Drawing on a previous talk,[13] let me first establish four relevant features of the shock. (1) It came as a genuine surprise to monetary policy makers, in the sense that it was neither anticipated nor anticipatable at anything other than a short horizon. [14] (2) The resulting rise in European wholesale gas prices was transmitted to UK CPI inflation (via both direct effects on household energy bills and indirect channels through the energy costs of producers of goods and services) in the course of a few months, and thus substantially more quickly than the typical 12-24 month lag in monetary policy transmission. [15] (3) The shock was very large by historical standards.