. underlying price pressures are expected to increase somewhat this year, owing to short - term supply constraints and the recovery in domestic demand, although they remain subdued overall, in part reflecting low wage pressures, in the 2 / 4 bis central bankers'speeches context of economic slack, and the appreciation of the euro exchange rate. once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative fiscal and monetary policies, will contribute to a gradual increase in inflation over the medium term. survey - based measures and market - based indicators of longer - term inflation expectations remain at subdued levels, although market - based indicators have continued their gradual increase. turning to the monetary analysis, the annual growth rate of broad money ( m3 ) stood at 12. 3 per cent in february 2021, after 12. 5 per cent in january. strong money growth continued to be supported by the ongoing asset purchases by the eurosystem, as the largest source of money creation. the narrow monetary aggregate m1 has remained the main contributor to broad money growth, consistent with a still heightened preference for liquidity in the money - holding sector and a low opportunity cost of holding the most liquid forms of money. overall, lending to the private sector remained broadly unchanged. the monthly lending flow to non - financial corporations showed a modest pick - up in february compared with the previous month. this was also reflected in a slightly higher annual growth rate of 7. 1 per cent, after 6. 9 per cent in january. monthly lending flows to households continued to be solid with the annual growth rate of loans to households remaining unchanged at 3. 0 per cent in february. the latest euro area bank lending survey for the first quarter of 2021 reports a moderate tightening of credit standards for loans to firms, following more significant tightening in the previous two quarters. heightened risk perceptions among banks were again the main contributor to the tightening, although their impact was less pronounced than in previous survey rounds. surveyed banks also reported a renewed fall in demand for loans to firms, mainly driven by a continued decline in demand for financing for fixed investment. with regard to lending to households, the survey indicated lower demand for loans for house purchase, while the credit standards for these loans eased slightly, supported by competition among lenders. overall, our policy measures, together with the measures adopted by national governments and other european institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by the pan

speech the complexity of monetary policy keynote speech by fabio panetta, member of the executive board of the ecb, at the cepr - eabcn conference on “ finding the gap : output gap measurement in the euro area ” held at the european university institute florence, 14 november 2022 the output gap – the difference between actual and potential output [ 1 ] – plays an important conceptual role in central banking. in normal conditions, the output gap represents a gauge of inflationary pressure by signalling the amount of slack in the economy. [ 2 ] in turn, this provides a yardstick against which central banks calibrate monetary policy. by steering demand so that actual output matches potential central banks can stabilise inflation around their targets. from the global financial crisis until the start of the pandemic, variations in the output gap reflected prominently the role played by demand factors. the implication for monetary policy was relatively straightforward. the shocks to demand pushed output, employment and inflation in the same direction, leading to a positive correlation between output gaps and inflation. monetary policy could aim to close the inflation gap without facing major trade - offs in terms of the output gap. central banks ultimately faced the difficulty, not so much of diagnosing, but of delivering : once inflation fell too low, their conventional instruments were constrained as interest rates approached their lower bound. central banks had to deploy non - standard policy tools to lift demand. today we are in a new environment. the economy is experiencing large, negative supply shocks pushing output and inflation in opposite directions. the correlation between estimated output gaps and inflation has become more blurred and uncertain than in the past. and the trade - offs facing monetary policy have become more complicated. in other words, monetary policy has become significantly more complex. in designing the appropriate monetary policy response, central banks need to make two key judgements : one on the origin of the shocks hitting the economy and another on their persistence. i will argue today that euro area inflation has been driven by soaring energy prices and enduring supply constraints even as the economy reopened after the crisis phase of the pandemic, unleashing pent - up demand. but the boost to demand from the reopening is fading, and we have no evidence as yet that supply shocks are having large and permanent effects on output potential. and if supply shocks durably lowered potential, our policy response would have to consider that they also affect demand by depressing current and future real income. against such a backdrop, monetary