BIS Review 43/2007  7  The differences in social models across European countries are likely to persist, precisely because the underlying values and preferences are different. What policy-makers can, and should, do is to learn from each other and from the different practices and experiences, assess what works and what does not, and then adapt the most promising ideas about economic institutions and regulations to the local conditions and the prevailing economic cultures. This is in fact a great advantage of the European Union’s unique cooperative framework. It can make possible what is neatly encapsulated in the title of a paper by Tito Boeri (2002): “Let Social Policy Models Compete and Europe Will Win”. VI. Price stability: the role of the institutional framework for central banks and fiscal policy  As stated at the outset, a country’s economic performance pertains to both economic growth and stability. Macroeconomic stability includes, inter alia, first and foremost price stability, which ensures that a currency keeps its purchasing power and retains the trust of the people. It also includes a stable financial system as well as prudent and sustainable fiscal policies. Also for this aspect of economic performance, the central proposition I have emphasised in the context of the presented conceptual framework remains intact: institutions matter and the social values of economic agents are embodied in appropriately designed institutions.
Compared with our June staff projections, the outlook has improved for 2021 and is broadly unchanged for 2022 and 2023. Inflation Inflation increased to 3.0 per cent in August. We expect inflation to rise further this autumn but to decline next year. This temporary upswing in inflation mainly reflects the strong increase in oil prices since around the middle of last year, the reversal of the temporary VAT reduction in Germany, delayed summer sales in 2020 and cost pressures that stem from temporary shortages of materials and equipment. In the course of 2022 these factors should ease or will fall out of the year-on-year inflation calculation. Underlying inflation pressures have edged up. As the economy recovers further, and supported by our monetary policy measures, we expect underlying inflation to rise over the medium term. This increase is expected to be only gradual, since it will take time for the economy to return to operating at full capacity, and therefore wages are expected to grow only moderately. Measures of longer-term inflation expectations have continued to increase, but these remain some distance from our two per cent target. The new staff projections foresee annual inflation at 2.2 per cent in 2021, 1.7 per cent in 2022 and 1.5 per cent in 2023, being revised up compared with the previous projections in June. Inflation excluding food and energy price inflation is projected to average 1.3 per cent in 2021, 1.4 per cent in 2022 and 1.5 per cent in 2023, also being revised up from the June projections.