been very low for more than a decade, and they are still lower than they were before the global financial crisis. the ecb has not been alone in how it has acted. some central banks started to normalise their monetary policy even earlier, and the exit from the highly accommodative monetary policy has been swifter than was expected. headline inflation started to come down towards the end of last year, mainly thanks to a decline in energy prices, and it fell to 8. 5 % in january. more worrying however is that 5 / 8 bis - central bankers'speeches core inflation has remained persistently high at more than 5 %, as the underlying price pressures are not yet receding. the ecb governing council consequently announced last month that it will continue to raise interest rates and keep them high enough to bring inflation back to its target of two per cent in the medium term. we also indicated that we intend to raise interest rates by another 50 basis points at our next monetary policy meeting in march. it is most likely this will not be the last rate rise in this cycle, and it is quite possible that interest rates will need to stay high for quite some time so that we can be sure that inflation will come back to, and remain at, close to two per cent. central banks need to focus on second round effects from inflation, and prevent large but temporary price surges, like those we have seen in very volatile energy and food prices, passing through into other prices, labour costs and inflation expectations. if they do, they could cause a wage - price spiral, which would then stop inflation from falling back to its medium - term target level after the temporary shocks have faded. the interaction of monetary, fiscal and structural policies high inflation is clearly a challenge not only for people, companies and central banks, but also for governments. europe has recently witnessed significant turmoil in energy markets and governments have tried to find ways to provide relief to households and companies either by direct subsidies or through new regulations in the energy markets. but even before the russian invasion of ukraine, it was expected that the green transition would push energy prices up. the signal given by that rise in energy prices was intended to have an important role in encouraging the green transition. the problem now is that not only are energy prices being steered by the green transition, but they have also moved much more sharply because of the extreme tension in geopolitics. we should distinguish between two features of the current problem. the first is

passed 10 %, though inflation rates were very different across the 1 / 8 bis - central bankers'speeches member states, ranging from 7 % in france to above 20 % in the baltics in that month. inflation in slovenia was just below the euro area average at 10. 3 %. the differences between the inflation rates in the various countries of the euro area first started to widen in 2020 when the pandemic caused stronger disinflation in countries that have large tourism sectors. as the pandemic faded, inflation picked up most in countries where the economy had declined less and where labour shortages were starting to put pressure on wages. the baltics were hit even harder by supply chain disruptions when the war and sanctions cut off imports from russia and prices rose. before the war started, gas and electricity were relatively cheaper in the baltic countries than they were on average in the euro area. this relatively low starting point made the subsequent price increases larger in percentage terms. after russia invaded ukraine, energy became the biggest cause of the divergence between the headline rates of inflation in euro area countries. a range of factors have caused this divergence, including the extent to which energy prices were regulated, and what support measures governments chose to alleviate the energy price shock for households and companies. differences in the energy generation mix have also contributed to the divergence, as have the terms of household utilities contracts. in countries where the prices for electricity or gas are fixed for longer, it took also longer for the increase in prices to pass on to consumers. let me summarise the main reasons why inflation was particularly high in estonia, reaching close to 20 % last year. much of the following also applies to latvia and lithuania as the other two baltic countries. to start with, the share of energy and food in the consumer basket is still somewhat higher in our countries than the average in the euro area. this meant that rapid rises in the prices of energy and food in particular consequently had a bigger impact on our inflation readings. compounding this, price setting has traditionally been more flexible in the baltic region than in other euro area countries, meaning that both rises and falls in commodity prices are translated more swiftly to consumer prices. administered prices are also flexible and governments have allowed higher global energy prices to pass through quickly to regulated prices, while governments in some other euro area countries have been more cautious. high energy prices have also passed through to consumer prices in estonia particularly fast because estonian households have generally preferred to have flexible prices in