The surge in inflation rates has become a major challenge that threatens price stability in many countries. I would like to give you a few examples. Between 2006 and 2008, eighteen developing countries have implemented inflation-targeting regime. In 2006, the end-year inflation was within the target band in twelve of these countries. In 2007, this number dropped to five. By May 2008 only one of these 18 countries (Brazil) has succeeded to keep inflation within the target band. In the remaining 17 countries, including Turkey, inflation is outside the target band. Developed countries are also experiencing a similar problem. By May 2008, only in one of the eight developed countries the inflation rate is still within the band – and that country is Canada, by the way. Average inflation throughout the world has increased one-fold to seven percent over the last 12 months. Inflation in developed countries has reached its highest level of the last eighteen years. For the first time in many years, inflation figures of the developing countries are in two digit levels. In this period central banks have adopted different approaches for fighting inflation. One reason of this divergence is the difference between the objectives of central banks. For example, the Federal Reserve Bank of the United States, with ultimate goals of price stability, financial stability and full employment, lowered interest rates by 325 basis points between September 2007 and June 2008 due to severe problems in the financial system.
Second, our decisions are based on the inflation path over the medium run, not on the latest observed inflation. This requires projecting inflation via different approaches. Recent ECB staff forecasts see inflation averaging 2.3% in 2024. Given this, earlier this month we decided to front-load the normalisation path of our key interest rates, and to announce further rate hikes down the road, in order to ensure the return of medium-term inflation to our 2% target. Third, it is very difficult to know how much further our key rates will need to rise eventually in this hiking cycle, given the huge uncertainty that we face in the current context. But for this very reason, economic models are helpful in providing us central bankers with some guidance. I have provided in this speech some estimates based on models developed by Banco de España staff. Crucially, this is a data-dependent forecast which may change as time goes by and new information comes in. Also, it will depend on our future decisions regarding our asset purchase programmes. I hope that my words have reassured you about our determination to rein in inflation without causing unnecessary suffering to our fellow euro area citizens. We live in difficult times, but we expect to rise to the challenge. Thank you for your attention. 8