are reasonable prospects that these favourable aggregate outcomes can continue for a while yet. the rba ’ s central forecasts, which were released last week, are for around trend growth in the economy over the next couple of years, and for underlying inflation to remain in the 2 – 3 per cent range. the unemployment rate is also expected to remain low, although some increase is possible over coming months. at the industry level, the picture is a lot more complicated. the economy is clearly going through a period of heightened structural change, and this is set to continue. some industries are expanding in relative importance, while others are contracting. given this, it is difficult to be sure how the countervailing expansionary and contractionary forces will balance out. so at the rba we are carefully examining every piece of data that comes in for insight into the net effect of these forces. we are also frequently talking to businesses and industry groups to better understand what is happening in firms at the forefront of structural change. it is the balance between these various forces that is likely to be a major influence on how the australian economy evolves over 2012 and beyond. before i conclude, i would like to say just a few additional words about the outlook for inflation. over recent quarters, headline inflation has come down as expected due to the unwinding of the large rise in fruit and vegetable prices that occurred in early 2011 ( graph 7 ). over the next few quarters further declines in the year - ended headline inflation rate are expected as the earlier increases in food prices fall out of the figures. indeed, it is likely that the headline rate will fall below 2 per cent in the middle of 2012, before increasing again to above 3 per cent. this increase is partly due to the introduction of a price on carbon, which is estimated to add 0. 7 percentage points to headline inflation in the 2013 financial year. as was the case with the introduction of the gst more than a decade ago, the bank will look through this direct effect when setting monetary policy. in underlying terms, inflation is expected to remain within the 2 – 3 per cent range over the next couple of years, with the carbon price adding around ¼ percentage point to underlying inflation in the 2013 financial year. one interesting aspect of the recent inflation data is the divergent trends in the prices of internationally traded items and the prices of goods and services that are not internationally traded ( graph 8 ). over recent times, the prices of non - traded goods and services have

the banking union. the supervisor has to ensure that the banking system is sound and can fulfil its function. if individual banks fail to do so, the supervisor alerts the above - mentioned authorities and works towards a sustainable solution. is italy currently the most serious risk to financial stability in europe? it must be recognised that the resilience of banks and financial systems has improved significantly in recent years. we are far too quick to forget this. the european banking sector holds significantly more capital than in 2008, and this capital is of higher quality. there are of course unresolved issues and we might be seeing a contagion effect on banks ’ share prices, which could be an overreaction. ultimately, a combination of different factors is at play. it ’ s not just brexit ; it ’ s also a question of the outlook for growth as well as geopolitical risks. bis central bankers ’ speeches the profitability problem is getting worse. a spanish banker has said that the banking sector is being killed by such low rates. low profitability is not only due to the low interest rates. fierce competition and unresolved legacy issues such as non - performing loans weigh on the profitability of banks. also, the extremely accommodative monetary policy also entails advantages for banks over the medium and long term. it drives economic growth to the benefit of citizens and companies, and ultimately the banks themselves. the banks must acknowledge and conduct their business within the prevailing macroeconomic environment. their challenge and their job is to make their business models less dependent on interest margins by increasing fees and other sources of income. efficiency, sales channels and cost - cutting also play important roles. how is the spanish banking sector doing? what advice would you give? its profitability and efficiency are better than the european average. in terms of efficiency, it ’ s among the best in the euro area. these are the strengths. as for the weaknesses, many european banks – and not just spanish banks – must do their homework, and think about how to cut costs to deal with the challenges of 2016 and beyond. spanish banks are dependent on interest margins and need to increase other sources of income, such as fee income. they also need to think about new sales channels and opportunities and challenges around digitalisation. will all the banks under your supervision survive the next two years? the objective of the supervisor is to ensure the functioning of the banking system. it is not our responsibility to protect individual banks