as broadly balanced. on the one hand, an even stronger recovery could be predicated on brighter prospects for global demand and a faster - than - anticipated reduction in household savings once social and travel restrictions have been lifted. on the other hand, the ongoing pandemic, including the spread of virus mutations, and its implications for economic and financial conditions continue to be sources of downside risk. according to eurostat ’ s flash release, euro area annual inflation increased from 1. 3 per cent in march to 1. 6 per cent in april and 2. 0 per cent in may 2021. this rise was due mainly to a strong increase in energy price inflation, reflecting both sizeable upward base effects as well as monthon - month increases, and, to a lesser extent, a slight increase in non - energy industrial goods inflation. headline inflation is likely to increase further towards the autumn, reflecting mainly the reversal of the temporary vat reduction in germany. inflation is expected to decline again at the start of next year as temporary factors fade out and global energy prices moderate. we expect underlying price pressures to increase somewhat this year owing to temporary supply constraints and the recovery in domestic demand. nevertheless, the price pressures will likely remain subdued overall, in part reflecting low wage pressures, in the context of still significant economic slack, and the appreciation of the euro exchange rate. once the impact of the pandemic fades, the unwinding of the high level of slack, supported by accommodative monetary and fiscal policies, will contribute to a gradual increase in underlying inflation over the medium term. survey - based measures and market - based indicators of longerterm inflation expectations remain at subdued levels, although market - based indicators have continued to increase. this assessment is broadly reflected in the baseline scenario of the june 2021 eurosystem staff macroeconomic projections for the euro area, which foresees annual inflation at 1. 9 per cent in 2021, 1. 5 per cent in 2022 and 1. 4 per cent in 2023. compared with the march 2021 ecb staff macroeconomic projections, the outlook for inflation has been revised up for 2021 and 2022, largely owing to temporary factors and higher energy price inflation. it is unchanged for 2023, as the increase in underlying inflation is largely counterbalanced by an expected decline in energy price inflation. hicp inflation excluding energy and food is projected to increase from 1. 1 per cent in 2021 to 1. 3 per cent in 2022 and 1

the interests of social justice and helps to protect the weakest members of our society, such as pensioners and the unemployed, who depend on fixed incomes and who cannot protect themselves against the costs of inflation with other assets, such as property or shares. broad agreement exists that there is no long - term trade - off between price stability and economic growth. attempting to use monetary policy to raise real economic activity above its sustainable level will, in the long run, simply lead to ever higher inflation, not to faster economic growth. such an attempt will simply forfeit the benefits of stable prices which i have just outlined and would therefore prejudice growth and employment prospects over the medium term. while the contribution it makes through maintaining price stability must not be overlooked, monetary policy clearly cannot solve the serious structural unemployment problem in the euro area. other policy areas have the instruments needed and are thus responsible for solving the structural problems. decisive action in this field is certainly required to improve growth and employment prospects. safeguarding sound government finances is a means of strengthening the conditions for price stability and achieving strong sustainable growth which is conducive to employment creation. in this context, the stability and growth pact sets the right incentives for the conduct of sound and disciplined fiscal policies across all participating member states. in addition, structural reforms in labour and goods markets, as well as a moderate development of wage costs, can best address the root causes of currently high unemployment in europe. the clear division of policy responsibilities i have just described enhances the credibility of monetary and economic policies in europe, increases transparency and facilitates accountability. it provides the proper incentives for the policymakers in individual policy areas. if all parties concerned respect the fundamental allocation of these responsibilities and act accordingly, the achievement of the objectives of all policy areas will be the natural outcome of their individual policy choices. in this regard the eurosystem supports the idea of a dialogue between monetary policy and other policy areas in the form of an open exchange of information. however, such a dialogue should be clearly distinguished from any attempts to coordinate policies ex ante, so as to achieve a certain “ policy mix ”, which would blur the fundamental responsibilities i described. such coordination would tend to decrease accountability, reduce the transparency of the policy framework for the public and increase uncertainty about policy actions, potentially threatening to destabilise the economy. finally, the debate on a “ balanced and appropriate policy mix ” should not be used to deflect attention from the structural reforms that are urgently needed to address