Pablo Hernández de Cos: Reflections on monetary policy arising from the latest inflationary-disinflationary episode

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the London School of Economics, London, 1 May 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I would like to extend my heartfelt gratitude to Ricardo Reis for inviting me to participate in this event. It holds special significance for me, occurring just a month before the conclusion of my six-year term as Governor of the Banco de España.

Back in 2018, when I was appointed Governor, we were navigating a world economy characterised by low interest rates and subdued inflation. Ironically, many quipped, "May you live in interesting times!" Little did we know that these times would indeed prove to be extraordinary. First, on account the Covid-19 pandemic and then, the largest surge in inflation since the 1970s.

Today, I am honoured to share with you some insights gleaned from my policymaker perspective during the inflationary-disinflationary episode in the euro area and the European Central Bank's (ECB) response to it. In doing so, I will also point out some key aspects that, in my view, deserve in-depth analysis in the future.

1 Why has inflation been so high? Why did we underpredict it?

The annual rate of inflation in the euro area rose from very low levels in late 2020 to 10.6 % in October 2022, an unprecedented figure in the history of the monetary union.