edward scicluna : address - annual dinner of the institute of financial services address by prof edward scicluna, governor of the central bank of malta, at the institute of financial services'annual dinner, st julian's, 14 november 2023. * * * mr president and members of the committee of the institute of financial services ( ifs ) malta, distinguished guests, good evening. introduction one year ago, i wasstanding in front of you at a time when the euro area economy, and that means us, waslooking for a silver lining amidst a gloomy outlook of high inflation and low growth triggered by the pandemic and by the war in ukraine. the pandemic prompted severe dislocations in demand and supply, some of which are still felt today. production had stalled big way due to lockdowns. in response, monetary policy became more expansionary while governments adopted unprecedented measures to support households and firms. to do " whatever it takes " was the mantra on both the monetary and fiscal side. the decision to support health care, purchasing power and employment was certainly the right one, but it came at a cost. public debt ratiosrose to very high levels acrossthe euro area. in late february 2022, the outbreak of the war in ukraine, a pivotal event with farreaching implications for the prevailing global order, significantly intensified the inflation process. this escalation was primarily driven by a substantialspike in energy prices resulting from the conflict. consumer prices surged, growing at a peak annual rate of 10. 6 % in october 2022. a decade of low inflation abruptly ended, and the psychological two - digit inflation threshold was breached for the first time in a generation. let me state the obvious, the primary objective of the european central bank is price stability. faced with price instability, we at the ecb's governing council had to act in a decisive manner, which we did by increasing interest rates ten times in succession since july 2022. in fact, monetary policy tightening continued uninterrupted to september 2023, for a total increase of 450 basis points in the ecb's key interest rates. interest rates were the main tool, but by no means the only monetary policy instrument that was activated in response to strong inflationary pressures. the reinvestment of maturing securities held under the asset purchase programme were halted, and the targeted long - term refinancing operations are being repaid. monetary conditions are

to the demand side, initiating a process that could push the world economy into a high inflation regime. contrary to the 1970s, however, many central banks are more resolute than ever to pursue their mandate of price stability. looking at the demand side, indicators of wage responsiveness are on the rise, but not to the extent that would fuel a wage / price cycle like in the 1970s. indeed, despite a tight labour market, organised labour does not exert the influence it had fifty years ago : the 2 / 4 bis - central bankers'speeches labour share of income has declined by around 15 percentage points from the mid1970s to 55 %. a caveat on the labour supply. today we still have to understand fully the make - up of our laboursupply post - covid. active ageing has still to come back to the 2019 levels, many young people are changing jobs more often, with some professions being shunned, people are taking time to decide what job they want to go for. in short a lot of supply characteristics and relationships with wage changes have changed. at the same time inflation is currently pulling down real wages, suggesting that demand factors are going to weigh on inflation going forward. on the supply side, however, firms operating in non - competitive industries have increased prices to a larger extent than the surge in input costs driven by the energy component. profits across sectors such as manufacturing, construction, utilities and agriculture have risen beyond the increase in nominal wages. such behaviour is normally associated with a de - anchoring of price expectations when compared to the recent past when the only prices to go up were energy and logistics related activity. taking a international perspective, two metrics neatly capture some of the macroeconomic developments currently unfolding. the inflationary pressures unleashed by skyrocketing energy prices sliced the world economies into four groups, as the economic environment faced by net energy exporters or net energy importers changes and substantially if these are advanced economies or emerging market and developing economies. indeed, while net energy exporting nations are benefiting from large windfall profits, emerging markets and developing economies are also facing the pressure from capital outflows driven by the synchronised monetary policy tightening undergoing in many advanced economies. thus, emerging market and developing economies that are also energy importers are subject to strong pressures, as they must cope with both high hydrocarbon prices and capital outflows. the fact that euro area is not witnessing a strong pickup in wages