many factors. at this stage, there is still a significant degree of labour market slack and weak productivity developments that keep a lid on wage growth. 2 / 3 bis central bankers'speeches furthermore, the process of setting wages is to some extent backward - looking in a number of euro area countries, reflecting formal and informal indexation mechanisms. 3 additionally, the timing of wage negotiations plays a role. wage negotiations often have a multi - year horizon ; given that headline inflation remained below 1 % for 38 consecutive months until december of last year, it is going to take some time for an increase in headline inflation to translate into second - round effects on broader inflation. moreover, weak wage growth could also reflect previous downward wage rigidities : difficulties in reducing wages during the crisis may result in a slower upward adjustment of wages as labour market conditions improve. 4 just as our monetary policy measures have effectively underpinned the economic recovery, they have also prevented the prolonged period of disinflationary pressures from turning into a sustained period of deflation. in fact, the accommodative monetary policy stance appears to be increasingly visible in developments in inflation expectations, which are showing signs of reversal from previous flat or negative trends, while also reflecting changes in the global environment. for example, market - based measures of euro area inflation expectations have been trending upwards since early september, while survey - based measures of inflation expectations continue to signal an increase of inflation. so while we are certainly seeing a firming, broadening and more resilient economic recovery that will in time translate into a durable increase in inflation, we cannot ignore the fact that one of the main forces behind the upward inflation trajectory that we expect to see over the medium term is monetary policy itself. the economic recovery and the outlook for price stability are still predicated on the very favourable financing conditions that to a large extent depend on continued monetary policy support. therefore, we need to look through the volatility in short - term data resulting from transitory factors in order to assess whether progress towards a durable and self - sustaining convergence in the path of inflation has been sufficient. with this aim in mind, the governing council reaffirmed at its last meeting that the asset purchase programme will continue until the end of december 2017, or beyond, if necessary, and in any case until we are sufficiently confident that inflation converges towards levels below, but close to, 2 % over the medium term and that this process will not reverse under less supportive monetary policy

not to say, however, that forces that are structural in nature and unrelated to monetary policy cannot influence the inflation trajectory for what might be a protracted period of time. for example, a supply shock that reduces firms ’ pricing power by either weakening barriers to entry or by increasing price transparency can result in a mark - up squeeze for firms, triggering a drawn - out process of disinflation that can last for years. but once firms have adjusted to the new competitive landscape and their selling prices stabilise around a lower equilibrium level, the mark - up squeeze will cease to drive aggregate inflation down. inflation – once more – will start fluctuating around the level that the central bank chooses for the medium term. the traditional phillips curve connection between current inflation, expectations of future inflation and the cycle will re - assert itself. eurosystem staff analysis confirms that the phillips curve remains alive and well in the euro area. today, that empirical regularity says that, while being on a gradual reabsorption path, some remaining slack continues to restrain underlying inflation in the euro area. 2 by ensuring accommodative financing conditions, monetary policy supports domestic demand, which creates the environment necessary for the mobilisation of idle resources to bring output back to its potential level. this will lead to a build - up of price pressures and ultimately pull inflation up. monetary policy also plays a pivotal role in anchoring inflation expectations, which are an important explanatory factor of actual inflation. after all, inflation expectations determine the intercept of the phillips curve. under normal conditions, longer - term inflation expectations should remain unaffected by transitory shocks that typically dissipate over the medium term, such as those related to oil prices. however, recurrent shocks that lead to either a prolonged period of above - or belowtarget inflation can be misinterpreted as a lasting change in underlying inflation. in my earlier example, if the central bank tolerates a prolonged period of declining mark - ups, and headline inflation is weaker than the central bank ’ s target, then the phillips curve in all likelihood will reanchor around a lower medium - term inflation level. in the worst scenario, self - reinforcing spirals may result, as firms and households start to extrapolate from past inflation outcomes. their expectations become self - fulfilling through adaptive wage - and price - setting behaviour. today, an important element keeping underlying price pressures subdued is muted wage dynamics, which are shaped by