the flipside of this argument is : the official price statistics overestimate the true rate of inflation. this isn ’ t a new topic, too. it was already discussed in the 1990s. and methodological adjustments have been made in the meantime to reduce the errors discussed at the time. but in any case, it ’ s worth mentioning that the governing council ’ s definition of price stability already incorporates a buffer for measurement issues. to sum up, most of the reasons for the current low rate of inflation are only temporary in nature. this is also reflected in survey - based longer - term inflation expectations, which are stable at slightly below 2 %. take commodity prices, for example. the impact of the strong decline in oil prices is already beginning to be washed out of the inflation rate. inflation in the euro area might rise to 1 ½ % as early as in february next year. taking a somewhat longer - term perspective, the ecb staff projected in its september macroeconomic projection exercise, that inflation in the euro area would continue to increase up to rates that are more or less in line with our definition of price stability – that is, a rate of below, 2 / 6 bis central bankers'speeches but close to, 2 % – at the end of the projection horizon. although some uncertainty surrounds the time span needed for this increase to take place, the medium - term determinants of inflation are intact. just as weak domestic demand dragged on inflation, so, too, will a waning output gap drive inflation higher. the phillips curve is still alive and well. 7 looking at germany, for example, labour markets are already largely cleared and unit labour costs are accordingly expected rising by 1 ½ % this year and to go up by just under 2 % in the coming years. so the first conclusion i will make is this : with respect to inflation, what went down, will go up – albeit at a modest pace. 2. 2 inflation target but it is equally true : we are still in a situation characterised by low inflation and low interest rates. some even fear that, because long - term interest rates are also low, there might be a secular decline in the long - term real interest rate. while i ’ m convinced that long - term real interest rates ultimately will rise – and their latest strong increase shows impressively that they can be set in motion quite quickly – the prospect of low real interest rates in the longer - run would be uncomfortable also for monetary policy because our policy space is

of governments, and their incentives to embrace consolidation are weakened, even though fiscal buffers are more important in the euro area than elsewhere. eventually, there might be increasing pressure on the eurosystem to make high debt sustainable through low interest rates. unfortunately, these market forces are the only mechanism left to set incentives for sound public finances as my perception is that the european commission has basically given up on enforcing the rules of the stability and growth pact. ladies and gentlemen unconventional measures not only change the risk - reward calculus of monetary policy. they also change its character. the monetary policy toolkit of the eurosystem is modelled around the idea of an “ open market economy with fair competition ". that means, in particular, that while monetary policy needs to be effective, it also has to keep market distortions to a minimum and treat all sectors similarly. that ’ s why the eurosystem has, for a long time, intervened only at the very short end of the money market. the other interest rates and prices were allowed to move freely. but most unconventional tools intervene directly in other markets. this makes it more difficult to contain market distortions. interventions in individual market segments also harbour the risk that additional interventions might have to follow in order to curb their distortional effects. more monetary policy fine - tuning leads to ever more fine - tuning. to sum up, then, my second conclusion is this : unconventional instruments should be used with extra care – even if they are used only temporarily. and we shouldn ’ t forget that our concept of price stability is a medium - term concept. so monetary policy doesn ’ t need to respond automatically whenever inflation deviates from levels consistent with the definition of price stability. and adopting a longer - term perspective to monetary policy allows policymakers to also take into account the less favourable risk - reward calculus of unconventional measures. this is exactly why the monetary pillar of the eurosystem ’ s monetary policy strategy is so important, because it sheds some light on the longer - term risks to price stability. but i am well aware that a wait - and - see attitude won ’ t help us regain room for manoeuvre while inflation is low. it will take something else for that to happen : stronger growth and more resilient economies. 3 fostering growth an economy that is growing faster can pay investors higher real interest rates. stronger growth – productivity growth, in particular – would therefore raise the long - term real interest rate. currently, long - term interest rates