with the reforms of financial regulation and supervision already outlined by the financial stability board and the basel committee. the aim of these reforms is to correct the serious incentive distortions revealed by the crisis and, in this way, to make financial systems both more resilient and less pro - cyclical. important gains in the direction of addressing the twin objectives of price and financial stability not only with the instruments of monetary policy can probably be achieved by developing macroprudential policy tools. 2 3. 2 the international monetary system the us monetary expansion and china ’ s exchange rate pegging could be maintained for so long because they were mutually reinforcing. demand from us consumers helped sustain china ’ s ( and other countries ’ ) export growth. at the same time, an elastic supply of cheap imports from asia helped keep inflation low in the united states, encouraging the fed to maintain an easy monetary stance. and the investment of emerging economies ’ official reserves in us treasuries contributed to compress long - term yields both in the united states and globally. all this fed global liquidity and rising asset prices. the countries that pegged their currencies to the dollar effectively imported us monetary policy, regardless of whether it was appropriate for domestic conditions. this fuelled liquidity and credit expansion, also because of difficulties in sterilizing the effects of the accumulation of official reserves, and tended to feed booms in domestic asset prices and investment. other surplus countries also had a responsibility in allowing the imbalances to grow. in japan, long delays in facing up to the structural problems of the financial sector caused a prolonged stagnation of demand. in germany and other european countries the labour market reforms introduced in recent years, in the absence of equally forceful reforms in product markets, have largely translated into stagnating wages and weak domestic demand. even though the imbalances were not sustainable, there was no effective mechanism – market - based or activated by multilateral surveillance – to induce a correction. on the one hand, by pegging their currencies to the us dollar, surplus countries managed to avoid pressure to adjust. on the other hand, the role of the us dollar as the international reserve currency ( the “ exorbitant privilege ” ) implied that the united states could finance persistent current account deficits without coming under market pressure, as long as the surplus countries were willing to accumulate dollar assets. having us external liabilities denominated in dollars and international assets mostly in foreign cu

the first is our assessment of the inflation outlook in light of the incoming economic and financial data. this assessment will be informed primarily by our staff macroeconomic projections, on which all data are incorporated in a coherent manner. in this regard, the staff march forecast pointed to a weakening of activity in 2023, with real euro area gdp expected to grow by 1 % in 2023 ( compared with 3. 6 % in 2022 ). this scenario is somewhat more optimistic than that of the previous projections ( published in december ), reflecting better than expected recent economic data and the fall in the cost of energy, so that real income losses are lower. growth is expected to pick up, to 1. 6 %, see “ an overview of the ecb ’ s monetary policy strategy ”. in both 2024 and 2025, based on a robust labour market, improving confidence and the recovery of purchasing power. however, these growth rates are lower than projected in december owing to a stronger tightening of financial conditions, including a larger appreciation of the euro exchange rate. and, in any case, the accumulated growth path expected now for 2022 - 2024 is significantly lower – around 2. 5 % lower – than that projected in december 2021, before the war in ukraine, reflecting the material deterioration of euro area terms of trade. on inflation, the baseline scenario is one of gradual convergence of inflation to our 2 % target. after peaking at 10. 6 % in october last year, hicp declined to 6. 9 % in march this year, according to the flash estimate, on the back of lower energy prices and base effects. by contrast, food price inflation and underlying inflation ( excluding energy and food ) have continued to rise, surprising on the upside and posting high rates in march ( of 15. 4 % and 5. 7 %, respectively ). headline inflation is expected to remain high for the rest of 2023, albeit on a downward path that will take it to 2. 8 % in the last quarter of the year. this drop in inflation is mainly explained by the energy component, while underlying inflation is expected to remain elevated. specifically, the ecb projections point to inflation averaging 5. 3 % in 2023, before decreasing to 2. 9 % in 2024 and to 2. 1 % in 2025. this downward trend would be underpinned by the gradual disappearance of upward pressures from the reopening of the economy, previous supply - side shocks ( supply bottlenecks and