we did at some point see a generalised overheating in the economy, it ’ s never a problem for central banks to withdraw excess liquidity. the third concern about our policy is that it takes the pressure off governments to pursue structural reforms. but there are several problems with this argument. for a start, it doesn ’ t work institutionally. it ’ s not the role of the ecb to use its monetary policy to force governments to reform. that ’ s not our mandate in the treaty. and frankly, for us to act in that way would be totally illegitimate as unelected central bankers. it doesn ’ t work empirically either. there ’ s not necessarily any connection between interest rates and reforms. for example, spain started its labour market reforms when interest rates had already gone down. italy passed a labour market reform last year in tranquil market conditions. likewise, france is pursuing the macron reforms with no market pressure. and the argument doesn ’ t work logically. think about the types of reforms that euro area countries really need – reforms to judicial systems, to education, to public administration. such reforms are difficult and can take a decade to bear fruit. enacting them takes personal conviction from politicians and a popular mandate for change. whether interest rates are temporarily higher is immaterial. in fact, what typically happens when interest rates are high is not long - term reforms, but rather short - term fixes to placate the markets. and that normally means consolidating budgets by bis central bankers ’ speeches raising taxes, which makes the recession worse. that in turn creates an even harder environment for structural reforms as the costs are higher in a depressed economy. so if we look at these concerns together, we can see a common theme. while each contains a grain of truth, there ’ s another side to the story which isn ’ t receiving the same attention. and this follows a pattern that we ’ ve seen throughout the crisis. in the course of the last few years some commentators were cautioning that our policies would cause runaway inflation. they didn ’ t. others warned that we were exposing ourselves to heavy losses from expanding our balance sheet and accepting lower - quality collateral. in fact we haven ’ t had a single loss. then those same authorities claimed that our policies were illegal. the european court of justice disagreed. now they warn us about the side - effects and risks of what we ’ re doing. but what i never hear them discuss is

the global supply of oil, for example – this is how the argument goes – then it can ’ t do anything about an inflation caused by rising oil prices, even if that were to continue for a long time. that ’ s true, of course. but it ’ s also true of just about everything that might otherwise affect inflation, including the many domestic influences. policy has no direct control over those, either. as long as you ’ ve got a floating exchange rate there ’ s nothing about being an open economy ( and therefore subject to swings in import prices ) that prevents monetary policy from controlling overall inflation, at least over the medium term. what being an open economy might mean, in the chart 6. goods price inflation tends to be more volatile and less persistent than services inflation shorter run, is that inflation is more volatile. that ’ s because prices of traded goods tend to be more volatile ( chart 6 ). and it ’ s here that the distinction is more significant. take oil prices as an example. these move around a lot more than those of non - traded goods and services and often have a significant and fairly immediate impact on the cpi. but that impact also tends to dissipate relatively quickly, after a year or so. and it ’ s for this reason, not because a change in interest rates can ’ t affect the supply of oil ( obviously ), that the orthodox response of monetary policy to a change in oil volatility measured as standard deviation over the sample ( annual data 2001 - 21 ). persistence measured as the lagged coefficient of a first - order auto - regressive model. sources : ons and bank calculations. prices is in the first instance to look through it. by the time policy could really do anything to offset such a rise, allowing for the delay between action and effect, the direct impact on inflation would largely have disappeared. it ’ s in this context that, referring to the current surge in tradable goods prices, several policy makers have used the word “ transitory ”. by that they do not mean ( and never meant ) that these effects will be gone in one, two or even twelve months. as we saw at the start, thanks to the protracted way in which developments in wholesale markets feed through to the ofgem cap, the recent jump in wholesale gas prices will directly my predecessor charlie bean explained this point very clearly in a talk in jackson hole in 2006. all speeches are available online at www. bankof