and international trade encouraged investment and supported productivity. technological advancements also lifted global productivity, shrank distances and lowered costs. the entry into the global trade system of vast new labour markets in china and eastern europe pushed down the prices of many traded goods. global supply chains grew rapidly, minimizing costs by linking the global economy through heightened specialization and trade. these supply developments all fostered a period of solid growth, low inflation and low interest rates. but these forces are now shifting. the failure to adequately share the benefits of growth has fuelled populism that is causing countries to turn inward. support for globalization is stalling or even reversing, and productivity growth is trending down. and as the growth in the working - age population slows and businesses find it harder to hire workers, there could be persistent upward pressure on wages. if higher wage costs are not matched by improvements in productivity, the costs of production will increase. almost three years of the pandemic and the invasion of ukraine by russia have also highlighted some of the vulnerabilities of interconnected trade. the pandemic made clear that relying too much on highly specialized supply chains can have downsides. and russia's weaponization of its natural gas supply has underscored the risks of assuming all countries share the same interests in peace and prosperity. rising geopolitical tensions, more broadly, have underscored the fragility of some business relationships. in the future, it seems likely that supply chains will be shorter, more diversified and more resilient. trade will likely narrow to more trusted partners. these changes will increase resilience but at the cost of efficiency. and through this adjustment, production costs could rise, increasing price pressures. over the long term, it seems likely that we won't have the same disinflationary forces that we've had for the past 30 years. these potential developments could make it harder to bring inflation back to the 2 % target and keep it there. but how much harder is very difficult to say. these are fundamental uncertainties we'll need to confront in the years ahead. but by constantly focusing on achieving the 2 % inflation target, our monetary policy framework is well designed to address uncertainty and adapt to new developments. if the inflationary forces going forward are stronger than we expect, we will start to see inflation coming in above our forecasts. and we will adjust our policy settings to achieve the 2 % target. if,

time, other parts of the economy were experiencing excess demand as consumers bought goods to replace the services they couldn't get. but the inflationary impact of excess demand for goods was larger than the disinflationary forces in close - contact services. as a result, our inflation models that focus on the average or aggregate imbalance between demand and supply in the economy had a hard time predicting the rise in inflation. third, supply disruptions are more inflationary when the economy is overheated. for the last 30 years, supply shocks - typically energy - have tended to have a temporary effect on inflation. a run - up in oil prices, for example, would boost inflation for a year or so, but oil prices would typically plateau or reverse, and inflation would come back down all by itself. since it takes more than a year for the full effect of monetary policy to work through the economy, central banks have tended to look through the direct impact of supply disruptions on inflation. that means we don't respond by raising interest rates. this year, the inflation response was different. as i've already mentioned, we were faced with a series of negative supply shocks just as the economy was reopening. and 2 / 5 bis - central bankers'speeches the effects of these supply shocks on prices and inflation was faster and more pronounced than usual. businesses, flush with customers, weren't worried about raising their prices. so they passed on the higher input costs more quickly to final goods prices. and customers, eager to finally buy what they wanted, paid the higher prices. as a result, the impact on inflation of the energy and agricultural price shocks was faster, larger and more widespread than our models suggested. in sum, since we started inflation targeting in the early 1990s, we have not been hit by large negative supply shocks at the same time as our economy was overheating. the lesson from 2022 is that even if long - term inflation expectations are well anchored, when the economy is in excess demand, businesses raise their prices more quickly and by more when their costs increase. all three lessons are linked, and we have taken them to heart. you don't get 8 % inflation because one thing went wrong. our experience in 2022 is that surprises can combine and interact with each other, resulting in outsized effects on inflation. i'd be pleased to talk more about these lessons and how we are adapting in our discussion, but now i want to look