Excerpts from the Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 25-26 April
The recent incoming information pointed to some moderation in activity but so far remained consistent with a solid and broad-based expansion of the euro area economy. The underlying strength of the euro area economy continued to support the Governing Council’s confidence that inflation would gradually converge to its inflation aim of below, but close to, 2% over the medium term. At the same time, measures of underlying inflation remained subdued and had yet to show convincing signs of a sustained upward trend. For underlying inflation pressures to continue to build up and support the path of headline inflation over the medium term, patience, persistence and prudence with regard to monetary policy remained warranted.
With regard to the progress towards a sustained adjustment in the path of inflation, the incoming information had on the whole changed little compared with the assessment made at the previous meeting. Headline inflation was up slightly from its recent trough but remained some distance from the Governing Council’s inflation aim. Price pressures were still weak and measures of underlying inflation had moved sideways.
Despite the observed moderation in activity, confidence in the underlying strength of the euro area economy and the eventual convergence of inflation to the Governing Council’s inflation aim remained unchanged. While measures of underlying inflation continued to be subdued, some comfort was drawn from encouraging signs of a strengthening in nominal wage growth and the continued anchoring of long-term inflation expectations at levels consistent with the Governing Council’s aim. In this context, a remark was made that the Phillips curve relationship may be non-linear, and this could support a swifter rebound in inflation when capacity constraints became binding. At the same time, it was widely cautioned that the uncertainty around the outlook had increased since the March monetary policy meeting. In particular, risks related to global factors, including the threat of increased protectionism, had become more prominent and warranted monitoring with regard to their implications for the medium-term outlook for growth and prices. The June 2018 Eurosystem staff projections would provide the next occasion for a more comprehensive assessment of progress with inflation.
Members broadly agreed that an ample degree of monetary policy accommodation remained necessary to accompany the economic expansion and secure the gradual convergence of inflation to levels below, but close to, 2%. The remaining uncertainties and the still muted underlying inflation pressures continued to justify caution and underlined the need to maintain patience, persistence and prudence with regard to monetary policy.
Overall, while a view was expressed that the Governing Council’s criteria for a sustained adjustment in the path of inflation could be considered as close to being satisfied over a medium-term horizon, there was broad agreement that the evidence remained insufficient at the current stage.