, speech at economic club of new york, 4 december. 2 deutsche bundesbank ( 2016 ), “ the phillips curve as an instrument for analysing prices and forecasting inflation in germany ”, monthly report, april. 3 source : ameco database ( workers aged 15 – 74 for the euro area and 16 – 74 for the us ). 4 ecb ( 2017 ), “ assessing labour market slack ”, box 3, economic bulletin, issue 3. 5 see cœure, b. ( 2017 ), “ scars or scratches? hysteresis in the euro area ”, speech at the international center for 6 / 7 bis central bankers'speeches monetary and banking studies, geneva, 19 may. 6 ecb ( 2017 ), “ domestic and global drivers of inflation in the euro area ”, economic bulletin, issue 4. 7 banca d ’ italia ( 2017 ), box on “ private sector contract renewals in 2016 ”, economic bulletin, no. 1, january. 8 for a fuller explanation of this point see draghi, m. ( 2016 ), “ on the importance of policy alignment to fulfil our economic potential ”, 5th annual tommaso padoa - schioppa lecture at the brussels economic forum 2016, brussels, 9 june. 7 / 7 bis central bankers'speeches

nairu ) – is narrowing and is forecast by the commission to close within the next two years. surveys of business capacity utilisation are now above their long - term average levels. and inflation is recovering. between 2016 and 2019 we estimate that our monetary policy will have lifted inflation by 1. 7 percentage points, cumulatively. yet the second leg of the inflation process – the transmission from rising demand to rising inflation – has been more subdued than in the past. how can this be explained? the link between output and inflation is determined by three main factors : external shocks to prices ; the size of the output gap and its impact on inflation ; and the extent to which current inflation feeds into price and wage setting. in different ways, each of these factors has been relevant for the delayed reaction of inflation to the recovery. temporary external shocks starting with external factors, one explanation for the slow improvement in inflation dynamics is that we are still suffering the after - effects of price shocks in global energy and commodity markets, which have led output and inflation to move in different directions. inflation has indeed been subject to such shocks over recent years, most notably the oil and commodity price collapse in 2014 - 15. this not only depressed the cost of imported energy, but also lowered global producer prices more generally. ecb analysis suggests that the global component in the underperformance of euro area inflation in recent years was considerable. in 2015 - 16, around two thirds of the deviation of euro area headline inflation from a model - based mean can be accounted for by global shocks linked to oil prices. even though the downward pressure on inflation from past oil price falls is now waning, oil and commodity prices are still having a dragging effect – if only because they continue to lack a clear upward trend. in fact, lower oil and food prices than those assumed in the march 2017 projections are an important factor behind the downward revision of our latest inflation forecasts. 2 / 7 bis central bankers'speeches oil - related base effects are also the main driver of the considerable volatility in headline inflation that we have seen, and will be seeing, in the euro area. falling import prices partly explain the subdued performance of core inflation, too. this is because imported consumer products account for around 15 % of industrial goods in the euro area. likewise, changes in commodity prices feed through into some services items and into industrial goods produced with high energy intensity. as a result, in the first quarter of 2017, oilsensitive items were still