The earlier spike in inflation largely reflects the effects of the rapid reopening of the economy, which pushed supply and demand in extreme ways. In fact, we are now seeing some of the pandemic-related spikes retrace, including prices for lumber, used vehicles, and rental cars. This process of adjustment may take another year or so to complete as the pandemic-related swings in supply and demand gradually recede. As the economy gets through these highly unusual dynamics, I expect inflation to come back down to around 2 percent next year. One reason I expect inflation to moderate is that measures of underlying inflation and longer-term inflation expectations have been relatively stable during this period of otherwise volatile inflation readings. There are two important aspects of longer-term inflation expectations: their level and their sensitivity to economic conditions and, in particular, to inflation. In terms of the level of inflation expectations, survey- and market-based measures of longer-term inflation expectations have reversed the declines of the past several years and are now around levels seen seven or eight years ago. They currently appear to be well aligned with our 2 percent long-run inflation goal. A second issue is how well anchored inflation expectations truly are, and whether there is a risk that they could drift higher in response to the elevated rates of inflation we have been experiencing. A group of economists at the New York Fed took a closer look at recent behavior of 2/4  BIS central bankers' speeches  inflation expectations from the Survey of Consumer Expectations.

Some pursue strategies geared to obtaining high revenue, which counter relatively high costs. Others focus on low costs that are compatible with relatively low revenue. And others strike a balance between average revenue-generating capacity and medium or low-level costs. These differences in strategies are reflected in different action plans: some are geared to growth in loans or fees; others to streamlining costs through various means, although two appear to be prominent, namely digitalisation and externalisation. Conclusions To conclude, I believe we all share the view that the challenges the financial sector faces in Spain are far-reaching. The social environment, supervision and regulation appear not to be helping, since they increase pressure on banks. However, experience shows that, sadly, it is almost always under pressure that reforms are undertaken. Compared with their European competitors, Spanish banks have significant comparative strengths to address the changes. These include higher profitability and efficiency, and a lower potential impact from the implementation of Basel III. We should harness these advantages and attempt to correct those areas in which we are less competitive. Irrespective of improving profitability, efficiency and solvency levels, the key long-term challenge involves transforming the business model. And as I have said, technology is central to this challenge. The future will be for those who are most prepared. In this respect, I believe that any challenge can be viewed from two different and, in fact, opposite standpoints: as a threat or as an opportunity. The difference between both views lies in the attitude adopted and the willingness deployed.