low rather than too high. since the global financial crisis, the inflation rate in the euro area has on average been just 1. 2 % ( slide 2 ). in germany, it has been only slightly higher, at 1. 3 %. in the ten years before the introduction of the euro, inflation in germany had on average been more than twice as high. for most people, the dangers of too high inflation are immediately obvious. however, many do not understand why too low inflation may also pose risks to price stability. this is what i would like to briefly explain now. 3 in the past years inflation expectations in the euro area have declined markedly. this becomes clear when looking at financial markets, where such expectations are formed every day. just before the pandemic broke out, financial market participants were expecting an inflation rate of approximately just 1. 3 % in the euro area in the long term, which was significantly below our target of 2 % ( slide 6 ). lower inflation expectations largely reflected scepticism and doubts about the euro area ’ s longterm growth prospects, which had been gradually deteriorating in the years leading up to the pandemic. conditions in the labour market are testimony to this. some 13 years after the start of the global financial crisis, the unemployment rate in the euro area excluding germany is still higher than in 2008, before the financial crisis ( slide 7 ). a high level of structural unemployment dampens aggregate demand and leads to a situation where many firms are less profitable because they cannot pass through increased costs to their customers. this, in turn, pushes inflation down. wage increases are then lower, too, and people 2 / 9 bis central bankers'speeches spend less on goods and services, creating a vicious circle. demographic change threatens to further exacerbate these issues in the future. in germany, the labour force is expected to shrink by almost 12 % by 2035 ( slide 8 ). an ageing population weakens expected future demand and may discourage firms from investing in innovative and efficiency - boosting technologies. in the 1980s, annual productivity growth in the euro area was 2 %. it has more than halved since. these trends hurt economic growth and employment and they reduce monetary policy ’ s precious room for manoeuvre in a crisis. this is linked to the two key determinants of nominal interest rates : expected long - term growth and inflation expectations. if they fall, so do interest rates. this is exactly what we have

price stability in the euro area. we will vehemently counter persistent upward and downward deviations from our inflation target. we will take the prices of owner - occupied housing into account in inflation measurement. and we will act carefully and cautiously in the current environment in order to finally pave the way out of the low interest rate environment after so many years. many thanks for your attention. the slides can be found on the european central bank website. 1 schnabel, i. ( 2020 ), “ narratives about the ecb ’ s monetary policy – reality or fiction? “, speech at the juristische studiengesellschaft, karlsruhe, 11 february. 2 the ecb website provides detailed information on the new monetary policy strategy. for a description of the key elements of the new strategy, see schnabel, i. ( 2021 ), “ a new strategy for a changing world “, speech at the virtual financial statements series hosted by the peterson institute for international economics, frankfurt am main, 14 july. 3 see also schnabel, i. ( 2020 ), “ covid - 19 and monetary policy : reinforcing prevailing challenges ”, speech at the bank of finland monetary policy webinar “ new challenges to monetary policy strategies ”, frankfurt am main, 24 8 / 9 bis central bankers'speeches november. 4 see also schnabel, i. ( 2021 ), “ escaping low inflation? ”, speech at petersberger sommerdialog, frankfurt am main, 3 july. 5 dihk ( 2021 ), “ engpasse treffen die deutsche wirtschaft in ganzer breite “, 19 august. 9 / 9 bis central bankers'speeches