of last week. inflation excluding food and energy for april is currently estimated to have reached 1. 2 %, up from an almost all - time low of 0. 7 % in march. however, inflation is predicted to oscillate around one and a half percent for the remainder of the year before resuming a gentle path toward levels closer to 2 % in the following two years. inflation stripped of the most volatile price components is also expected to follow an upward path which should bring it to levels comparable with those of headline inflation by 2019, but the trajectory is expected to remain slow. more sophisticated measures of underlying inflation pressures have yet to show a convincing upward trend. there is not yet sufficient evidence that the observed strengthening of producer price inflation at the earlier stages of the pricing chain will be durably transmitted to later stages which matter for hicp inflation. annual global producer price inflation excluding oil remained elevated at 3. 1 % in february, standing above its long - term average. yet, further up the pricing chain, producer price inflation for domestic sales of non - food consumer goods increased only slightly to 0. 3 % in march. a clear sign of a turning point is not yet visible. one way to reconcile the increasing price pressures at the earlier stages with weak producer price inflation of consumer goods is a squeeze in margin. in any case, a lagged transmission of pipeline pressure up the pricing chain would be in line with past observations. similarly, the gdp deflator, the broadest measure of domestic price pressures and one closely linked with developments in underlying inflation, does not yet provide evidence of strengthening. in the fourth quarter of 2016 the annual growth rate of the gdp deflator decreased further, although mainly on account of a weaker contribution from unit taxes. a strengthening of unit labour cost growth and profit margin growth can be a reliable signal that domestic demand is exerting a material traction on inflation. from this perspective, profit margin growth has increased in the last two quarters of 2016 after it had been depressed by the waning terms of trade effects. by contrast, unit labour cost growth has been broadly flat. this suggests that in order to achieve a sustained adjustment in the path of inflation wage growth has to be stronger. this will require that higher employment levels not only reduce the slack in labour markets, but also feed through into wage dynamics. at this juncture it is not easy to predict how quickly this will happen. in particular, while the amount of slack plays a decisive role 5

/ 6 bis central bankers'speeches for underlying inflation, there is high uncertainty around its measurement. a strengthening labour market may attract “ marginally attached ” workers back into the labour force, or encourage those “ underemployed ” to seek more hours, causing the effective supply of labour to rise in tandem with demand. due to such effects, measures of labour underutilisation which are broader than the recorded unemployment rate would have predicted lower inflation in the last two years and thereby offered a better account of observed inflation outcomes than more traditional phillips curve specifications. in view of this evidence domestic wage pressures may therefore only materialise at a relatively late stage in the economic expansion. mirroring still weak domestic price pressures, market - based inflation expectations have failed to correct in a sustainable manner and continue to suggest only a very slow adjustment towards 2 %. appropriateness of the current very accommodative monetary policy stance in view of currently available evidence, the governing council in its april meeting has judged that there is not yet sufficient evidence of progress towards a durable and self - sustaining convergence in the path of euro area inflation that would warrant a scaling back of the exceptional degree of monetary policy accommodation. for us to conclude that a self - sustaining convergence in the path of inflation is accomplished, we will not only need to build confidence that inflation is on an upward path reaching levels close to 2 % within a meaningful medium - term horizon. we will also need to verify that inflation is sufficiently robust to a firming of policy. in other words, inflation would need to maintain its trajectory even with diminishing support from monetary policy. in this context it should be recalled that the latest ecb staff projections from march this year include a material contribution from monetary policy to the path of inflation. in sum, continued monetary policy support for demand remains key to inflation convergence. the recovery of inflation still depends on the very favourable financing conditions that firms and households are facing, which in turn is largely due to the current very accommodative monetary policy stance. the forward guidance on the future course of our policy is an integral component of our stance, as re - asserted by the governing council at its last meeting in april. the governing council ’ s forward guidance is structured around two fundamental elements : conditionality which links the horizon of the app to the sustained adjustment in the path of inflation consistent with our inflation aim, and the sequencing which gives indications about the expected path of our key policy rates during the life of our net