##b staff will provide us with new projections. 3 the recent global episode of disinflation and its economic costs we are not yet fully through the period of heightened inflation – even though we may see headline inflation come close to target for a time in late summer. nonetheless, i would like to zoom out and take a look at the bigger picture. because we can learn a great deal for our future monetary policy from the price developments of the past few years. to some people, the surge and subsequent drop in inflation rates may have felt a bit like riding a roller coaster. and, much like a roller coaster, inflation can trigger strong emotions and fear. however, while many people willingly ride roller coasters because they love the rush of adrenaline, almost nobody likes high inflation. the fear of roller coasters may originate from a variety of sources. among them could be fear of heights, fear of speed, or fear of being trapped. similarities to the inflation rate immediately spring to mind : the fear of its height, the fear of the speed at which it rises, and the fear of being trapped by being unable to make ends meet. the actor john barrymore summed up this final fear very succinctly by saying : " why is there so much month left at the end of the money? " more scientifically, a recent paper by stefanie stantcheva provided survey - based evidence for the reasons why people dislike inflation. 5 in short, her answer is that many individuals feel that inflation systematically and durably erodes their purchasing power. moreover, she writes, " inflation triggers stress and emotional reactions. " this is also the finding that we obtained from our survey of households. 6 and, as an aside, this sentiment may also have an impact on private consumption. even though inflation is falling and incomes are rising again, consumption has so far not picked up as expected. inflation is painful for both individuals and the economy as a whole. however, it is not only the rise in inflation, but also its decline, known as disinflation, that is often associated with pain. experience and research have taught us that monetary policy tightening leads to successful disinflation, because tightening acts as a brake on economic activity. lowering inflation thus comes at a price in terms of temporarily weaker growth. a popular yardstick for measuring the economic cost of disinflationis the " sacrifice ratio ". this measures the percentage deviation of gdp from its trend in relation to the decline

research has shown that demand also played an important role. not least, expansionary fiscal and monetary policy support measures in response to the covid19 pandemic stimulated aggregate demand. eickmeier and hofmann found that demand factors made a sizeable contribution to the most recent rise in inflation in the euro area, though to a somewhat smaller extent than supply factors. 2 for the united states, they found demand to be more important than supply. and, in sintra, giannone and primiceri presented their conclusion that demand dominated the recent surge in inflation in the euro area. 3 in any case, i am glad that we decided to act and start raising key interest rates in july 2022. while this may have been late, it was not too late to prevent inflation expectations from becoming de - anchored. thanks to monetary policy tightening as well, inflation has fallen significantly since its peak in the autumn of 2022. in the euro area, the hicp headline rate now stands at 2. 6 % – less than a quarter of what it was at its peak of 10. 6 % in october 2022. the rapid decline in energy and food prices, which had risen sharply after russia's invasion of ukraine, was certainly a major factor. but monetary policy contributed to the decline in inflation, too. last week, carolin pflueger presented a paper in jackson hole. on the basis of us data, she found that the swift rise in interest rates had probably been " important for containing the rise in inflation expectations ". 4 while we are close to it, we have not yet reached our medium - term target of 2 %. in the euro area, headline inflation has been around 2. 6 % for ten months now. core inflation, especially services inflation, remains elevated and is a matter of concern for us. nevertheless, looking at what we have achieved since october 2022, and given the improved medium - term inflation outlook, we decided to cut key interest rates in june. that being said, a cautious approach is warranted. in july, we decided to keep rates constant. we will continue to carefully monitor incoming data, such as the august flash estimate that will be released tomorrow or the latest signs of weakening wage growth. we are thoroughly assessing whether these data corroborate our expectation of a timely return to our 2 % target. 2 / 7 bis - central bankers'speeches in two weeks, when the governing council holds its next meeting, ec