Klaas Knot: Learn from the past and plan for the future - a perspective on monetary policy

Good afternoon everyone,

Thank you very much for inviting me to join this distinguished panel here at the Barclays-CEPR Monetary Policy Forum. It's a pleasure to be here. I feel particularly inspired knowing that we are assembled here just a few blocks away from Gordon Square, where John Maynard Keynes – one of the greatest economic minds of modern times – lived.

Preparing for this event, I learned that this beautiful venue is sometimes also called the 'Titanic hotel'. The main reason being that the restaurant is said to be almost identical to the Titanic's dining room. Both were designed by Charles Fitzroy Doll, the hotel's architect, and also the man who was commissioned to do the first-class parts of the ocean liner.

Let me say that although I feel the weight of the historical context of this beautiful place, thankfully I do not see a connection between the euro area economy and the doomed ship. In fact, the economy has sailed a steady course lately despite high global waves and tight monetary policy.  

Starting with inflation, I am confident to say that the inflation peak lies behind us. Chart 1 on the left-hand side shows the evolution of euro area headline inflation, decomposed into its main components since 2019. We see a clear disinflation since late 2022 when inflation stood at more than 10%. This largely reflects the unwinding of earlier energy and food prices spikes, as well as the easing of supply-side bottlenecks. The reduction in goods inflation from 6.8% to 0.9% has been very strong, too. Only services inflation still stands at an elevated 3.7%. The next phase of disinflation is likely to be more volatile, because the large swings in energy prices last year together with the staggered reversal of fiscal support measures have an impact on this year's inflation readings via base effects.