Speech by Peter Praet, Member of the Executive Board of the ECB, at the Council of the European Union, Brussels, 29 January 2018

" …How can we substantiate today that inflation convergence has sufficiently strong legs to support its upward trajectory towards our aim? By looking at a broad range of indicators of price pressures, for example measures of inflation trends, notably including core inflation indices. As these underlying inflation statistics – available today – contain information that is valuable for predicting the level of headline inflation in the future, when short-term shocks that may influence its level today have faded away, we want to cross-check our medium-term projections for headline inflation with these measures. In parallel, an eye on capacity utilisation and the extent of unutilised resources can help reinforce our confidence in inflation convergence as a more robust real economy is likely to support a build-up of broad-based price pressures looking forward.

Our third criterion, resilience, measures the robustness of inflation convergence to a partial withdrawal of monetary policy accommodation. If the inflation outlook is overly dependent on monetary support, the upward adjustment cannot be considered sustained. So, we want to verify that the path would be maintained even in less supportive monetary policy conditions.

Today, we are still some distance away from meeting all three criteria at the same time. So, we still need patience and persistence in steering our policy conduct.

Patience is necessary because it takes time for price pressures to build up, and to be reflected in the information that forms the basis for our assessment of progress towards a sustained adjustment in the path of inflation.

Persistence is necessary because the recovery in inflation is, in itself, a consequence of the prevailing accommodative monetary policy stance. Even if incoming data were to validate the expectation of a gradual build-up of inflationary pressures, this would not be sufficient to affirm a sustained adjustment, if even less supportive monetary policy conditions were to imperil the inflation trajectory.

Monetary policy will evolve in a data-dependent and time-consistent manner. Once the Governing Council judges that the three criteria for sustained adjustment have been met, net asset purchases will expire, in line with our guidance. From that point in time, the evolution of inflation will remain conditional on reinvestments continuing for an extended period of time and on policy rates remaining at their present levels well past the end of our net asset purchases. The stock of long-duration assets held in our portfolio will continue to put downward pressure on longer-term interest rates well beyond the end of our net purchases. Policy rates remaining at their present levels well past the end of our net purchases will contribute to holding the short to intermediate portions of the yield curve in check for as long as necessary, thereby ensuring that financial conditions remain consistent with a sustained adjustment of inflation".

The original speech is here
Information is taken from the ECB’s site.