All-items HICP reached 7,5 per cent in March from 5,9 per cent in February. The rising inflation, is increasing the production costs of firms and is eroding disposable income. The war has heightened the uncertainty of future price developments and the pace with which supply bottlenecks will recede. In parallel, new pandemic restrictive measures in China, for example the closing of the city of Shanghai and its port, which is considered the busiest port in the world, also accentuate supply chain difficulties. Energy prices, which were driven even higher after the outbreak of the war, now stand 45 per cent above their level one year ago and continue to constitute the main reason for the high level of inflation. Overall, inflation pressures are projected to remain strong in the shortterm undermining business and consumer confidence. The main challenge for monetary policy now is to control inflation without jeopardising economic recovery. This requires careful attention of all these elevated uncertainties and their implications on the evolving economic outlook. The complication is that the inflation pressures result mainly from the supply side shocks which cannot be remedied via monetary policy. Higher interest rates will neither restore supply chains nor reduce energy prices. For this reason, at the ECB Governing Council, we have already began adjusting certain monetary policy instruments such as the Pandemic Emergency Purchasing Programme and the Asset Purchasing Programme, reducing significantly the bonds bought by the national central banks of the euro area members states. In other words monetary tightening has already begun.
As a macroeconomist whose work is grounded in thorough analysis, and a profound knowledge of models and data, he also takes into account the policy implications of the findings of his research. This is an important factor as he is a pioneer who has done groundbreaking work, and his research frequently encourages others. In this respect his work on the global decline in labour’s share of income has prompted a number of papers from academia and different institutions so as to understand this change over time and its implications for income distribution and productivity. Similarly, his work on capital allocation and productivity in Southern Europe has been widely influential. Mr. Karabarbounis, congratulations on my behalf and on that of the Banco de España. 2