It is a pleasure to welcome you to the 2026 edition of the ECB Conference on Monetary Policy: bridging science and practice.
In this speech, I lay out some diagnostic challenges in determining the appropriate ECB monetary policy. Our interest rate decisions are based on three criteria: (i) our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data; (ii) the dynamics of underlying inflation; and (iii) the strength of monetary policy transmission.
Taking these criteria in turn, the medium-term component of the inflation outlook plays a central role in setting the appropriate monetary policy. With multiple shocks hitting the economy and playing out over different time horizons, a primary diagnostic task is to distil the medium-term component of inflation. In line with our monetary policy strategy statement, the ECB formulates its medium-term outlook based on an integrated assessment of all relevant factors. This is a highly data-dependent process, but its comprehensive nature and medium-term orientation means that it is neither data point-dependent nor does it rely on a mono-causal narrative.
In particular, while the energy supply shock is currently the main driver of inflation, our assessment of the medium-term inflation outlook draws on a wide range of considerations. First, the magnitude and likely duration of the energy supply shock requires careful assessment. Second, its impact on medium-term inflation depends on the scale and persistence of pass through from energy inflation to non-energy inflation. Third, a range of other factors (fiscal, AI, financial conditions) not only intermediate the transmission of the energy supply shock but also have direct implications for medium-term inflation.