undermining consumer confidence include the partial reversal of the boost to consumption provided by lower petrol prices ; the increase in the marginal tax rate in the february budget ; high levels of household indebtedness despite some deleveraging ; and continued weak growth in credit extension to households. employment growth trends are also not supportive in this respect, and although wage growth remains relatively high, the positive net impact on consumption could be offset to some extent by the negative impact on employment from relatively high wage growth. bis central bankers ’ speeches inflation is currently well within the inflation target band of 3 – 6 per cent. however, the focus of monetary policy is not current inflation, which is something that we cannot do anything about, but rather on the inflation trajectory over the relevant policy horizon, i. e. the time period over which monetary policy can have an impact on inflation and which is around 12 – 18 months ahead. headline cpi inflation accelerated to 4, 5 per cent in april, which is at the mid - point of the target range. the main drivers of the annual increase were housing and utilities ( 1, 3 percentage points ), miscellaneous goods and services ( 1, 1 percentage points ) as well as food and non - alcoholic beverages ( 0, 8 percentage points ). on a monthly basis headline cpi inflation increased by 0. 9 percentage points, up from the recent low of 3, 9 per cent in february and which is mainly attributable to the previous decline in the petrol price, which has largely been reversed. as we noted in our monetary policy statement last week, inflation is expected to accelerate in the coming months, and is expected to rise to 6, 8 per cent on average for the quarter thus temporarily breaching the upper end of the headline inflation target range during the first quarter of 2016. the cpi inflation rate is expected to average 6, 1 per cent and 5, 7 per cent in 2016 and 2017, respectively. core inflation is forecast to average 5, 4 per cent and 5, 2 per cent in the outer two years with the persistence in this measure largely being attributed to high levels of wage growth, currency depreciation and inflation expectations that are anchored at the upper end of the target range. there are a number of upside risks to this outlook. the main one emanates from the exchange rate, given the rand ’ s sensitivity to imminent us fed monetary tightening. south africa, along with other emerging markets with wide current account and fiscal deficits are seen to be particularly

( tfps ) of 23 eu economies since 1998. countries in europe grow at different speeds. they also appear to belong to different convergence clubs2. even among central european economies, more than one convergence club could be discerned. 1 / 3 bis - central bankers'speeches for example, hungary and the czech republic appear to belong to one club, while poland, lithuania, and latvia belong to another ; the members of the two clubs are converging to different points of tfp if they continue their current trajectories. furthermore, lietuvos bankas, in its 2020 study on convergence, estimated that lithuania would have needed a tfp of more than 30 % higher over the past 20 years to catch up with the tfp levels of the original eu member states of germany, france, or belgium, who belong to a club of their own. this challenges the convergence measurement itself because convergence in terms of tfp is not straightforward. countries belonging to different convergence clubs appear to be experiencing convergence at the level of their club – a concept that is not equivalent to the overall convergence within the eu. what is puzzling is that when we focus solely on convergence in terms of gdp, we find evidence that such convergence is happening. for example, over the past decade lithuania's gdp per capita rose to 87 % of the eu average. the other two baltic states also boasted robust convergence rates in terms of gdp convergence. but when we look at productivity – and, in my view, productivity is the key driver of growth – the picture changes. data shows substantial productivity variation within europe. labour productivity growth is uneven, and we can see evidence that the central european region was growing considerably faster in the first decade of the 21st century than in the following decade. this is a gravely worrisome trend, especially when discussing convergence. the productivity debate usually ends with prescriptions like " increase investments " and " implement structural reforms ". today, however, i hope that panelists will share their thoughts on the economic model of central europe in general. have we reached the limit of what can be achieved without undergoing a fundamental transformation of how we do things? will automation and immigration provide the impetus for this region to grow and prosper? with all this in mind, i would like to move to the institutional side and its effects on convergence. institutions undoubtedly play a significant role in determining countries'overall economic success. the question remains as to which institutions have the greatest impact on convergence and through what