This clarifies how the Treaty’s mandate is interpreted by the Governing Council and gives the public clear guidance concerning its assessment of the success of the single monetary policy. Price stability is to be maintained over the medium term. According to the published definition, price stability has been defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%. Neither would deflation - that is, a persistent fall in the price level - be consistent with price stability. The annual rate of inflation in the most recent available data of around 1%, measured on this harmonised basis, is consistent with the definition of price stability. The Eurosystem has therefore enjoyed the good fortune to assume authority over monetary policy in the euro area in an environment of price stability, owing to the successful process of disinflation and convergence achieved within Europe over the past decade. Monetary policy needs a forward-looking, medium-term orientation. This takes into account the fact that monetary policy affects the price level only with variable, usually long and unpredictable time lags. It is not able to control all short-term movements in the price level. To maintain price stability, we have chosen a distinct monetary policy strategy, one that reflects the special circumstances that exist at present as well as those likely to prevail in the foreseeable future. The chosen strategy ensures as much continuity as possible with the former strategies of the NCBs.
The Governing Council does not react mechanistically to a single variable - whether this be a forecast, the exchange rate, unit labour costs or fiscal indicators - but rather takes into account the complete picture offered by all available and meaningful leading indicators of future inflation. In this context, the Governing Council analyses the economic reasons behind the projected risks to price stability. The appropriate monetary policy response to a threat to price stability will depend on the nature of the threat. The Governing Council can only understand the nature of the risk if it is presented with a full set of data. From these, it can attempt to identify the nature of the disturbance to price stability. Having identified the threat, an appropriate policy response can be selected and implemented. Internal forecasts of economic activity and inflation in the euro area can also contribute to the success of an appropriately forward-looking monetary policy. However, the Eurosystem should not be judged on, or held accountable for, the accuracy of its internal forecasts. Thus, publication of the forecasts cannot contribute to accountability. Rather, its performance in maintaining price stability in the medium term should be used by the public to judge the success of the Eurosystem. Allow me to say a few words on certain proposals made in the recent public debate, which may be deemed to suggest that the focus of monetary policy should be shifted towards objectives other than price stability.