This has been reflected, since late summer 2017, in a growing discrepancy between the growth of the GDP deflator and core inflation. The GDP deflator has followed a more pronounced upward trend, rising from 0.6% at the end of 2016 to 1.5% at the end of 2018. One development that may have contributed to lower imported inflation was the appreciation of the euro exchange rate by around 8% in nominal effective terms over the last two years. ECB internal analysis suggests that this had an impact on non-energy industrial goods inflation in 2018, especially for durable goods.15 The upshot is that the pass-through of wages to prices is likely to be moderate until these various factors have played out. But there are several reasons to believe that they will unwind over the medium term. Our monetary policy will remain accommodative and will respond to any changes in the inflation outlook. The effects of exchange rate appreciation have now reversed. Demand should recover, so long as the downside risks to our outlook do not materialise. And with stronger demand, firms should be able to rebuild margins. Moreover, even if the economy were to slow more than expected, the risks to wage growth may be contained. Since the end of 2017, wage growth has been driven less by wage drift16 and more by negotiated wages, which are more persistent and react more slowly to cyclical labour market conditions. Negotiated wages for 2019 have to a substantial degree already been set by previous negotiating rounds.
Mario Draghi: Monetary policy in the euro area Speech by Mr Mario Draghi, President of the European Central Bank, at the conference "The ECB and its watchers XX", Frankfurt am Main, 27 March 2019. * * * The last year has seen a loss of growth momentum in the euro area, which has extended into 2019. This has been predominantly driven by pervasive uncertainty in the global economy that has spilled over into the external sector. So far, the domestic economy has remained relatively resilient and the drivers of the current expansion remain in place. However, the risks to the outlook remain tilted to the downside. The monetary policy measures we took at the last Governing Council meeting reflect this assessment. In the face of a weaker growth outlook, they help maintain the accommodative policy stance that we managed to preserve last year as we rotated our instruments from net asset purchases to forward guidance. Our policy thereby continues to accompany the economy on its path towards our inflation objective. The outlook for the euro area economy We expected the expansion to slow in 2018 as the business cycle matured and growth retreated towards potential. But as the economy weakened in the second part of last year, it was not yet certain whether we were witnessing a temporary departure from this scenario, or a more lasting deterioration in the growth outlook.