the natural rate of unemployment or the potential level of output ) is not observed and very hard to estimate with a reasonably restrained quantitative approximation. in any case, these considerations provide additional proof that inflation expectations, in contributing to determining real interest rates, are a crucial ingredient for the identification of the most appropriate stance for monetary policy. in general, credibility in its pursuit of price stability and, in turn, the anchoring of longer - term inflation expectations, is one of the most precious assets of any central bank. when expectations are firmly anchored to the central bank ’ s target, monetary policy can protect price stability from supply and demand shocks, and address their effects in labour, goods and financial markets over time in a swift and efficient manner, with lower costs in terms of economic activity. on the the low inflation observed in the last few years even in the face of strong labour markets has stimulated a wave of papers testing the decline ( possibly to zero ) of the slope of the phillips curve. see, for example, coibion and gorodnichenko ( 2015 ), blanchard ( 2016 ), del negro et al. ( 2020 ) and the references cited therein. for some limited evidence on the reversal, see hobijn et al. ( 2023 ). see wicksell ( 1898 ), woodford ( 2003 ) and, for a recent discussion on the difficulties in using this concept as a guide for monetary policy, visco ( 2022 ). contrary, when inflation expectations become de - anchored, a stronger monetary policy reaction to any shock is required, with possibly elevated costs for the real economy. indeed, the need to enhance credibility and guarantee a solid anchoring of inflation expectations underlies one of the most important developments in central banking over the last few decades, namely the increasingly widespread adoption of the monetary policy framework known as ( flexible ) inflation targeting. the existence of a clear and credible anchor for inflation expectations has proved to be a fundamental ingredient to keep actual inflation closer to the price stability objective. 7 measuring inflation expectations despite their key role for monetary policy, measuring, and sometimes interpreting, inflation expectations is not simple. first, the large variety of data that has become available over the years has confirmed that there is no one, single measure of inflation expectations, since different economic agents ‒ households, firms, professional forecasters, market operators ‒ all have heterogeneous perceptions about the future dynamics of prices. a second challenge is connected with understanding how inflation expectations affect economic decisions and what

necessarily add up to the “ actual ” data shown in the figure. – ( 2 ) the ecb - spf is conducted quarterly, the ecb - sma shortly before each monetary policy meeting of the ecb governing council ; in ecb - spf “ long term ” is defined as 4 calendar years ahead in q1 and q2 rounds and 5 calendar years ahead in q3 and q4 rounds ; in ecb - sma “ long term ” is defined as the horizon over which the effects of all shocks will vanish and should be interpreted as around 10 years. figure 4 consumers ’ inflation expectations in the euro area ( monthly data ; per cent ; median ) source : ecb consumer expectations survey. note : inflation expectations 12 months ahead and between 2 and 3 years ahead. figure 5 firms ’ pricing intentions in the euro area ( monthly data ; percentages ) source : european commission. note : pricing intentions refer to the balance of the responses “ increase ” and “ decrease ” to the question on expected own price dynamics over the next three months. figure 6 inflation tail risks in the euro area ( per cent ) survey - based probability distributions ( ecb - sma, long - term expectations ; average ) probabilities from inflation options ( daily data ; 5 years horizon ) source : bloomberg and ecb survey of monetary analysts ( ecb - sma ). note : ( 1 ) ecb - sma “ long term ” is defined as the horizon over which the effects of all shocks will vanish and should be interpreted as around 10 years. – ( 2 ) probabilities inferred from inflation options ; π < 0 ( π < 1 ) is the probability of inflation being smaller than 0 ( 1 ) on average in the next 5 years ; π > 3 ( π > 4 ) is the probability of inflation being larger than 3 ( 4 ) on average in the next 5 years ; 50 - days moving averages. figure 7 drivers of changes in inflation expectations ( daily data ; percentage changes ) source : hoynck and rossi ( 2023 ). note : 5 - year inflation swap rates ; changes with respect to 3 january 2022. figure 8 credit and money growth in the euro area credit to firms ( 3 - month annualised percentage change ) m1 and m3 ( 12 - month percentage changes ) source : ecb.