For medium-term maturities, so-called “breakeven inflation rates” – derived from the difference between the yields on conventional and inflation-indexed gilts – have stabilised over the past few months. Given the frictions that many believe distort indexed-linked yields, 15 I also like to look directly at nominal forward rates. The underlying thought is that, relative to fluctuations in bond yields brought about by past shifts in inflation regimes, longer-term risk-free real rates may not move around a great deal, so that any systematic inflationary impulse would be quite likely to show up in nominal yields. Consistent with that, following the UK’s disinflation in the early-1990s, medium-term nominal forward rates fell by around 400bp. Since the new monetary regime became established in the late 1990s, they have been more or less stable, and currently remain within the range prevailing over the past decade or so. Surveys of household inflation expectations tell a broadly consistent story. For near-term horizons, they have picked up sharply. What limited information we have on the public’s  14  Broad money (M4) can be adjusted using Bank estimates of banks' intragroup business with other financial corporations, as well as banks' repo activity with LCH.Clearnet's RepoClear service. Such estimates are based on anecdotal information provided by a small sample of banks. Work is under way within the Bank to improve the basis of these estimates, see Burgess, S and Janssen, N (2007), “Proposals to modify the measurement of broad money in the United Kingdom: a user consultation”, Bank of England Quarterly Bulletin, vol.

The Governing Council today also decided on further details of how the Eurosystem will buy assets with yields below the interest rate on the deposit facility under its public sector purchase programme. These decisions will be published in a separate press release at 15.30 CET. The monetary policy decisions taken in December 2016 have succeeded in preserving the very favourable financing conditions that are necessary to secure a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term. Borrowing conditions for firms and households continue to benefit from the pass-through of our measures. As expected, headline inflation has increased lately, largely owing to base effects in energy prices, but underlying inflation pressures remain subdued. The Governing Council will continue to look through changes in HICP inflation if judged to be transient and to have no implication for the medium-term outlook for price stability. A very substantial degree of monetary accommodation is needed for euro area inflation pressures to build up and support headline inflation in the medium term. If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate. In particular, if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration. Let me now explain our assessment in greater detail, starting with the economic analysis.