pandemic. these pipeline pressures will fade only gradually and will likely remain a source of upward pressure for consumer prices over the foreseeable future, with most firms expecting unusual cost pressures to persist for at least another six months. in addition, in large parts of the euro area the recent surge in wholesale electricity and gas prices will only be passed through to consumer prices with a lag. there is also a lot of uncertainty whether energy inflation will decline to the extent suggested by the futures curves underlying our december projections ( slide 7, right - hand chart ). brent oil spot prices are now at their highest levels since 2014 and current futures curves are well above the levels seen at the end of last year. gas futures prices, too, are markedly higher than in december of last year. while in the past energy prices often fell as quickly as they rose, the need to step up the fight against climate change may imply that fossil fuel prices will now not only have to stay elevated, but even have to keep rising if we are to meet the goals of the paris climate agreement. 2 in the eu, price developments under the emissions trading system ( ets ) signal such an impending structural shift. ets prices have recently reached a new record high of around €90 per tonne of carbon, almost three times as high as at the beginning of 2021, and they are expected to remain at elevated levels for the foreseeable future. it is a reminder of the challenges we are facing in anticipating potential structural shifts in the underlying inflation process that could extend well beyond the energy sector. 3 sequencing of policy normalisation in the euro area all in all, there have been few instances in the recent past where the information set available to policymakers has changed so profoundly and in such a short period of time as has been the case since the beginning of the year. how today ’ s attack on ukraine changes the euro area outlook is highly uncertain at this stage. we are monitoring the situation closely and will carefully evaluate the consequences for our policies. based on the macroeconomic situation predating the war, however, inflationary pressures will likely prove stronger and more persistent over both the near and the medium term. policy optionality is therefore needed more than ever to protect price stability. 4 our decisions in december of last year to end net asset purchases under the pandemic emergency purchase programme ( pepp ) in march and to recalibrate the path of future purchases under the asset purchase programme ( app ) have been a first

to initiate a rapid sequence of policy rate hikes to above their estimated neutral levels. according to survey and market - based proxies, this would require bringing policy rates well into positive territory ( slide 8 ). however, these are not the conditions that we are facing today. rather, the economy is evolving in ways that suggest that, after a long period of very subdued price pressures, inflation is increasingly likely to stabilise in close proximity to our 2 % target over the medium term. the current inflation outlook therefore calls for a gradual normalisation of our policy stance, reflecting the significant progress made towards meeting our inflation target in the future. during such a process of gradual normalisation, the focus should be first on unwinding step - bystep the exceptional measures we took to fight low inflation, starting with net asset purchases. the degree to which policy will need to be adjusted over time depends on how the inflation outlook continues to evolve. the focus on ending net asset purchases first reflects, at least in part, the fact that their side effects tend to increase over time. 5 5 / 8 bis central bankers'speeches the experience of the past few years demonstrates, for example, that balance sheet policies have a significantly larger impact on house prices than changes in short - term policy rates, thereby contributing to the measurable rise in residential real estate prices ( slide 9 ). 6 similarly, years of balance sheet expansion have caused the bond free float in some economies to decline to very low levels ( slide 10, left - hand chart ). as such, an end to net asset purchases enhances the availability of safe assets that the market requires to function well ( slide 10, righthand chart ). 7 ending net asset purchases when inflation is robustly converging to our target also credibly underlines that our actions are solely guided by our mandate, refuting concerns about fiscal dominance. finally, in the current environment of large imported inflation, reversing the current exceptional measures has the potential to mitigate inflationary pressures even without the usual long lag in policy transmission. over the past years, these measures have contributed to large capital outflows from the euro area, thereby putting downward pressure on the euro exchange rate ( slide 11 ). the exit from these measures can thus support the currency and, for a net importer of energy, provide tangible and immediate support to euro area households and firms by improving the terms of trade. choice of policy instruments the second aspect relates to the