a sustained period of high inflation can leave a large footprint on the price level if it is not fully reversed. in turn, a surprise permanent increase in the price level can trigger medium - term inflation dynamics through its impact on the subsequent path for nominal wages, as some unwinding of the initial decline in real wages can be expected and the wage adjustment process can play out over an extended period. [ 6 ] second, especially if there is a backwardslooking component in how firms, households and financial market participants form beliefs, a period of high inflation can persistently alter inflation expectations, with a direct and substantial impact on mediumterm inflation expectations. again, this risk is more substantial in relation to the reverting component than the pure noise component of inflation. for these reasons, actual inflation outcomes and measures of inflation expectations belong in the family of indicators that are relevant in assessing the underlying inflation pressures. in one direction, strong increases in headline inflation or an upward above - target revision in inflation expectations would reinforce upward pressure on underlying inflation ; in the other direction, a material decline in headline inflation or an easing in above - target inflation expectations should alleviate upward pressure on underlying inflation. underlying inflation : indicators and analytics inflation increased very quickly since the middle of 2021 ( chart 1 ). while the peak was at 10. 6 per cent in october, inflation has remained at a high level, with the february reading still at 8. 5 per cent. comparing headline inflation to the various standard indicators of underlying inflation, chart 1 also shows that the decline in inflation has been primarily due to the easing of some temporary inflation pressures, most notably the remarkable decline in gas prices in recent months. [ 7 ] chart 1 also shows that various forecasts ( including the december 2022 eurosystem staff projections ) project a substantial decline in inflation later in 2023 that extends into 2024 and 2025. the gap between standard measures of underlying inflation and these forecasts poses significant interpretative challenges for policymakers. chart 1 indicators of underlying inflation and inflation projections and expectations ( annual percentage changes ) sources : eurostat and ecb calculations. the latest observations are for february 2023 ( flash ) for hicp and hicpx and january 2023 for the rest of underlying inflation measures. the latest observations for market - based indicators of inflation compensation are for 2 march 2023. the spf data show expected annual percentage changes one - year and two - years ahead of latest available ( i. e. dec 2022

gent sejko : conducting monetary policy when fiscal space is limited speech by mr gent sejko, governor of the bank of albania, at the high - level seminar on “ rethinking monetary - fiscal policy coordination ”, jointly organised by the bank of slovenia and the international monetary fund, tirana, 20 may 2016. * * * dear panel moderator, my honorable fellow panelists, i believe this seminar provides a perfect platform for exchanging insights on the coordination of monetary and fiscal policies. this issue is quite topical from the perspective of challenges central banks are facing today. before going into more detail on the topic of this panel, i would like to share some thoughts with you regarding the coordination of monetary and fiscal policies. the price stability mandate of the central bank and their operational independence does not lessen the need of effective coordination between monetary and fiscal policies. at a strategic level, the foremost objective of the macroeconomic policy is to achieve sustainable growth, in a context of price stability and a viable external account. this goal requires the contribution of both the fiscal and the monetary policies, within their respective domains, as well as a fair degree of coordination amongst them. on a macro scale, a balanced policy mix and an effective policy coordination requires : – policy sustainability : monetary and fiscal policies need to be on a sustainable path. prevailing academic consensus requires this sustainability to be anchored in simple and effective policy rules, such as an inflation targeting regime and some kind of fiscal sustainability law. furthermore, sustainability is mutually reinforcing : inflation expectations can only be anchored if the fiscal policy does not rise destabilizing fears while, at the same time, the fiscal policy can be more sustainable if it is not burdened by excessively high interest rates, fueled by a not so credible monetary policy ; – policy credibility : monetary and fiscal policies need to be credible. policy credibility arises from a combination of a clear and sustainable policy framework, the right structure of incentives, as well as a positive track record ; – policy awareness : in other words, the recognition of different goals, different transmission channels and different time frames, informing and constraining monetary and fiscal policies. in the long run, a balanced policy mix would minimize demand volatility, enhance the allocation of resources, and promote long - term growth. effective policy coordination would limit the fiscal deficit to a level that can be financed via capital markets, without recourse to monetary financing, without distorting the allocation of resources, and without