the recovery more resilient to developments overseas. the latest ecb staff macroeconomic projections point to robust private consumption and a continued recovery in investment over the period ahead. real gdp growth is projected to remain well above potential growth and to average between 1. 7 % and 2. 2 % in 2017, 2018 and 2019. the risks to the growth outlook are broadly balanced : on the upside, the current cyclical momentum could result in stronger than expected growth, while the remaining downside risks relate primarily to global factors and developments in the exchange rate. from today ’ s point of view, the strength and resilience of the recovery tends to boost our confidence that reflationary forces will gradually support headline inflation returning towards a level that is below, but close to, 2 %. but it ’ s too soon to claim victory : inflation dynamics remain subdued. after hovering at levels well below 1 % for three years, with occasional dips into negative territory, euro area headline inflation edged higher towards the end of last year and stood at 1. 5 % in august according to eurostat ’ s flash estimate. owing to energy - related base effects, headline inflation rates are likely to temporarily decline towards the turn of the year. looking further ahead, headline inflation, according to our latest staff projections, is expected to remain clearly below a level that is consistent with our inflation aim over the next two years, averaging 1. 5 % in 2019. furthermore, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring with regard to its possible implications for the medium - term outlook for price stability. some measures of underlying inflation – which relates more to domestic price pressures – have ticked up moderately in recent months. for example, hicp inflation excluding food and energy, which in august was 1. 3 % for the second consecutive month, has surpassed the 1 % level where it had been languishing for around three years. nevertheless, underlying inflation pressures are yet to show convincing signs of a sustained upward trend. an important element keeping underlying price pressures subdued is muted wage dynamics, which are shaped by many factors. besides weak productivity developments, the significant degree of remaining labour market slack acts to contain wage growth. when assessing slack, it is also worth looking at alternative measures of unemployment. the so - called u6 measure captures unemployment, underemployment ( meaning workers who would like to work more hours ) and marginal attachment, namely those workers who are not competing very actively in the

the nominal interest rate, but this already concedes the main point : that the nominal rate has to be adjusted in response to information about current and prospective inflation. having made this point, i have to concede that there are not many people who would advocate that interest rates should literally be kept permanently fixed. but there is a more subtle version of this viewpoint which is much more widely held : that is the view that policy should always aim to keep interest rates as stable as possible. expressed in this way, the idea sounds more reasonable, and i think it is fair to say that it pervades some of the commentary that follows interest rate adjustments – the idea that changes in interest rates ( and especially increases ) should be avoided if possible. we need to be clear that this is an incorrect view, for the same reasons i have just outlined. if policy were to give too great a weight to stabilising interest rates, as an end in itself, it would risk destabilising the economy, because it would fail to keep up with inflationary or deflationary pressures as they emerge. of course, it would also be a fallacy to jump to the opposite conclusion, that more interest rate variation is always better. obviously, a policy which made large and hastily - decided changes in interest rates would also be a destabilising force, so it has to be recognised that interest rates can be moved by too much as well as too little. how much variation, then, is the right amount? this is not the sort of question that is open to a precise quantitative answer, but it is certainly possible to give some general principles. • first, it depends on the size of the shocks that the economy experiences. bigger interest rate adjustments will probably be needed the bigger the shocks to which you are responding. when the shocks and imbalances are small, interest rates do not need to move as much • second, it depends on how responsive the economy is to a given change in interest rates. arguably in the 1970s and 1980s, when inflation was high and variable, the economy was less responsive to a given change in interest rates than it has been subsequently. hence, larger changes in interest rates were needed to achieve a given effect. since the early 1990s, interest rate changes have generally been much smaller than in the earlier period. • third, it depends on how much uncertainty there is. when you are very sure about your reading of the economy and about the likely effects of a change