At the same time, the standard monetary policy action was judged as insufficient because, during the crisis and especially from 2010 the interest rate channel of the monetary policy transmission mechanism was impaired, initially because the interbank market was dysfunctional, then because the banking sector in some countries became itself dysfunctional and was unwilling or unable to perform its normal intermediation role. In response to this challenge, the ECB engaged in a sequence of non-standard measures to restore a proper transmission of the monetary policy impulses, including lending operations through a fixed rate tender procedure with full allotment, the provision of liquidity with longer maturity and an expansion of the set of assets that could serve as collateral for receiving central bank liquidity. As financial integration in the euro area was being severely eroded and banks largely retrenched within their national borders, the Eurosystem remained ready to provide liquidity at consistent and uniform conditions over the entire euro area, as it should be in any monetary union. As a further step to address the banks’ funding problems and financial fragmentation within the euro area, the Eurosystem started intervening directly in securities markets in order to correct severe mal-functioning of certain segments. The first action of this type was the Securities Markets Programme (SMP) launched in May 2010, followed by a purchase programme for bank-issued covered bonds started in October 2011, and finally the Outright Monetary Transactions (OMT) programme announced in September 2012 but so far not activated.

The decline has accelerated in the first months of this year, however. The wide variations in prices for some imported consumer goods, in particular footwear and clothing, can have an unexpected impact on consumer price figures from one month to the next. In 2004, the fall in prices for some services made a strong contribution to keeping inflation low. The fall in airfares and prices for telecom services was particularly pronounced. Intensified competition in these industries has probably reduced operating margins and driven up productivity. In recent months, airfares have picked up again. In addition, the rise in food prices was very subdued in 2004. New entrants may have increased competition in this industry. These prices have also edged up recently. Low inflation in the Nordic countries Inflation has also declined in the other Nordic countries and is relatively low. Common factors have been increased efficiency in distributive trades and service industries and the low rate of increase in prices for imported consumer goods. In highly open economies such as the Nordic countries, we may have to expect somewhat wider variations in inflation than other countries. Euro-area inflation has remained at a higher level even though developments in activity are weak in the euro area. Stable inflation expectations Experience may indicate that inflation expectations remain stable even if inflation varies somewhat as long as the interest rate is used actively to moderate variations. Monetary policy cannot fine-tune economic developments, but it can avoid the largest effects when the economy is exposed to disturbances.