 Okay, so good morning everyone and welcome to DCB, it's my great pleasure to be able to open the inflation conference which is organised by ourselves here at DCB and of course with our colleagues from the Federal Reserve Bank of Cleveland. So we've got five sessions today or over the two days and we've got two poster sessions and I think everyone can see from the programme it's a very rich and interesting range of topics starting from the Phillips Curve to supply chain issues to expectations so I'm looking forward to a very stimulating two days and I'd just like to welcome everyone who's in the room here today in Frankfurt and also to all of our colleagues who are online today. So without any further ado let me start by introducing our Executive Board Member Isabel Schnabel who I'm very happy to say is here to open the conference and she will give some remarks about disinflation and the Phillips Curve which I think is a very appropriate first welcoming remarks in advance of the first session so please Isabel the floor is yours. Good morning everybody. On behalf of the ECB I would like to welcome you warmly to this year's conference on inflation drivers and dynamics which is as always mentioned by Sarah organised by the ECB and the Federal Reserve Bank of Cleveland Centre for Inflation Research. It's a real pleasure to see that this conference is becoming a tradition and a fixed entry in the calendars of inflation experts from both central banks and academia. As always the organisers have put together an impressive programme. The research that will be presented today and tomorrow has direct relevance for the challenges facing central banks worldwide and I'm therefore very much looking forward to the fascinating papers and to a hopefully lively discussion. In my remarks this morning I would like to focus on a topic that will be discussed extensively later today the slope of the Phillips Curve. I will ask what that slope implies for the pace of disinflation in the euro area against the backdrop of the recent deterioration in the euro area economic outlook as well as for the prospect of a soft lending. I will close my remarks by explaining why the current environment of high uncertainty warrants an approach to monetary policy that is data dependent and robust in the sense that it considers not only the most likely future path of inflation but the entire distribution of risks. Over the past month economic sentiment in the euro area has steadily deteriorated. The left hand chart of my first slide shows that in the manufacturing sector activity and orders have fallen sharply to levels typically only seen in deep recessions even if sentiment may be showing first signs of bottoming out. Weakness has gradually spread from the manufacturing to the services sector as pent up demand for services is slowing down. Although the labor market remains exceptionally tight the slowdown in aggregate demand is gradually affecting employment expectations as you can see on the right hand side. In conjunction these developments point to growth prospects being weaker than foreseen in the baseline scenario of the June euro system staff projections. At the same time there are indications that the euro area economy may not be on the brink of a deep or prolonged recession. The left hand chart of this slide shows that consumer confidence has improved visibly over previous month mainly on the back of high nominal wage growth and declining energy prices. This is contributing to real disposable income growth which should support private consumption going forward. Today's economic conditions pose two important questions to policymakers. The first is whether the current slowdown will prove sufficiently strong and persistent to reduce underlying price pressures in a way that ensures a timely return of inflation to our target. The answer depends on the drivers of the recent deterioration in the business climate. The marked rise in interest rates has certainly contributed to recent developments. This slide shows that bank lending flows to both firms and households have dropped sharply in recent months as banks have increased their lending rates and tightened their credit standards. Our bank lending survey confirms that the level of interest rates is a key reason behind the contraction in loan demand. These are the yellow bars on this slide. The lack of fact of past policy rate increases implies that monetary policy will continue to dampen aggregate spending. Whether it will be sufficiently restrictive, however, depends on the broader macroeconomic environment. For example, the effect of the excess buildup of inventories after the pandemic on industrial orders may weaken or reverse over time. Similarly, a more resilient US economy may reduce the current drag on euro area exports while a deeper slowdown in China may have the opposite effect. Moreover, some of the observed developments may be structural rather than cyclical, reflecting the secular challenges facing the euro area economy. Above all, the energy shock is still working its way through the economy and threatens to leave permanent scars on potential growth. Although wholesale electricity prices have come down from their peak, they remain about three times their level three years ago. Price volatility and hence uncertainty also remain significantly higher. The left-hand chart of this slide shows that persistently higher input costs are undermining the price competitiveness of firms in energy-intensive sectors illustrated here by the chemical industry. This seems to have contributed to the emergence of a significant wedge in industrial production of energy-intensive and other sectors shown on the right-hand side. Activity by energy-intensive sectors has fallen persistently since the start of Russia's war on Ukraine. It is therefore possible that the current weakness in activity is not only the result of a cyclical slowdown, but also a reflection of significant structural headwinds. The future path of inflation will depend on how the economy tackles these challenges. Firms could shut down operations and relocate to outside the euro area, thereby reducing potential output. Alternatively, they could accelerate investment in more energy-efficient technologies to restore their competitiveness. This, together with broader efforts to fight climate change, could help explain why investment in machinery has remained surprisingly resilient so far, as shown by the yellow line on the left-hand chart. Our latest bank lending survey corroborates this view. The right-hand chart shows that fixed investment related to the green transition is an increasingly important driver of loan demand, and that climate change had an easing impact on loans to green firms in those in transition, while it had a tightening impact on loans to fossil fuel-intensive firms. Both falling supply and rising investment may attenuate the disinflationary effect of tighter monetary policy over the short-term, while green investment may be disinflationary over the longer-term. Therefore, understanding the drivers and consequences of the recent deterioration in the business climate is critical for our assessment of the appropriate monetary policy stance. The second question facing policymakers is how fast the slowdown, should it persist, will succeed in reducing underlying price pressures? The slope of the Phillips curve is at the heart of this question. All else being equal, inflation should be more responsive to the economic slowdown, the steeper the slope of the Phillips curve. A soft landing scenario would see the target inflation rate being reached in the steep part of the curve. By contrast, if the slope is flat around the target, a significant or protracted slowdown in growth may be required to bring inflation back to target. Over the past few months, underlying inflation measures have sent mixed signals about the slope of the Phillips curve. So you can see this on this slide. Model-based indicators, built to extract the persistent and common component of inflation, point to a rapid decline in price pressures. This is a gray line on the left-hand side. At the same time, measures that are more closely related to domestic demand and labor costs remain elevated, with no clear signs of a turning point yet. One reason for this divergence seems to be related to supply side factors. The right-hand panel on the left-hand chart shows that removing the estimated effects of supply side factors on underlying inflation notably reduces the range spent by underlying inflation measures, although they remain elevated. Sector-specific inflation rates, which you can see on the right-hand side, provide an equally heterogeneous picture. While inflation has started to decline rapidly in the non-energy industrial goods sector, it is still rising in the services sector, where the price momentum also remains uncomfortably high. This heterogeneity implies that there is no single Phillips curve, but a set of different curves pointing to different paces of disinflation across sectors and countries. Moreover, the slope of the Phillips curve is likely to vary over time. A growing strand of research shows that the shape of the Phillips curve is highly state-dependent. When marginal costs increase rapidly, firms tend to raise their prices more frequently. As a result, the Phillips curve becomes steeper. The left-hand chart of this slide shows that this is what we have seen over the past two years. As the energy shock hit the euro area, the share of goods and services seeing price increases rose sharply. This is the yellow line. The right-hand chart shows research by peta-garadi and co-authors on why this happens. If prices are far away from the optimal level, firms are more likely to adjust them. As Francesco Lippi recently put it in Cintra, large shocks travel fast. The question then is whether the Phillips curve continues to be as steep today as it has been in the recent past. There are reasons to believe that this may not be the case, as there is often an asymmetry between positive and negative cost per shocks. While firms are quick to pass large cost increases onto consumers, they may be more reluctant to pass on declines in marginal costs. And indeed, this slide shows that the share of firms currently planning to reduce prices, the blue lines, is nowhere near the share of firms that intended to raise prices when marginal costs were increasing, even though producer and import prices are currently falling more rapidly than they had risen before. Research suggests that the presence of trend inflation can help explain this stylized fact, as this will over time realign firms' prices with those of their competitors even in the absence of price cuts. One takeaway therefore is that a micro-founded Phillips curve based on marginal costs rather than the output gap can help explain the surge in inflation. But such a curve would likely point to price pressures fading more gradually. Research that will be presented by Gauti later today, however, suggests that for the United States, a Phillips curve built on an adequate measure of labor market tightness, namely the number of job vacancies exceeding the number of unemployed workers, can explain last year's inflation outburst equally well, with potentially different implications for the pace of disinflation. All that is needed is downward wage rigidity that makes a slope of the Phillips curve non-linear. In the euro area, the ratio of vacancies to unemployed workers also increased sharply to record highs as economies reopened after the pandemic. But it remains notably below the unitary threshold identified by Gauti and Pierpaolo. The question is whether in the euro area labor market tightness could be consistent with lower ratios of vacancies to unemployed workers than in the US. This could be the case as unemployment is structurally higher in the euro area. Indeed, many indicators are signaling unprecedented tightness in the euro area labor market. For example, the left-hand chart shows that the share of firms reporting labor as a factor limiting production remains near record highs. The right-hand chart shows that the shape of the euro area Phillips curve using the ratio of vacancies to unemployed workers looks very similar to that in the United States. A soft landing scenario would see inflation fall back quickly towards a 2% target on the steep part of the curve. This requires, however, that both the shape and location of the Phillips curve remain unchanged, which is highly uncertain. This uncertainty is also reflected in recent developments in market-based measures of inflation compensation. The left-hand side of this slide shows that in the past these are the yellow dots, an increase in the probability of recession, which is shown on the X-axis, systematically went hand-in-hand with a decline in forward inflation swap rates, shown on the Y-axis. This is currently not the case. The blue dots show developments in 2023, when inflationing swap rates have increased despite rising recession probabilities. The right-hand chart shows that this mainly reflects an increase in inflation risk premium, which is shown by the red bars. Such a counter-cyclical pattern could be consistent with investors' hedging against the risks of central banks not leaning forcefully enough against inflation remaining above target. This slide shows one way to see how the markets perceive the monetary policy stance. It shows the gap between short-term real risk-free rates in a market-based measure of the natural rate of interest. Only recently, rates moved into firmly restrictive territory. The uncertainty about the pace of disinflation led support to the data-dependent approach adopted by the governing council. This approach recognizes that monetary policy needs to respond to the way the economy reacts to the steepest hiking cycle in the history of the euro area. Therefore, at every upcoming meeting, we will assess whether the impact of the cumulative tightening on the future path of inflation is sufficiently strong to ensure a sustained and timely return of inflation to our 2 percent target, or whether the pace of disinflation is too slow for us to be confident that our current monetary policy stance can ensure medium-term price stability. To ensure robustness, we will need to consider not just the baseline scenario for the inflation outlook, but the entire distribution of risks, as there is still an exceptionally large uncertainty about the medium-term inflation outlook. This can be seen when considering our latest survey of professional forecasters, which is shown on this slide. Both individual and aggregate uncertainty, shown by the yellow and red lines, remain exceptionally high. And although the disagreement among survey participants has recently declined, it still stands at more than twice the historical average. The wide range of views reflects risks in both directions. App-side risks include stronger than expected growth in unit labor costs, possibly driven by lower-than-projective productivity growth, firmer corporate pricing power, and risks of new adverse supply-side shocks. If such risks materialized, inflation could subside only very gradually, or could even re-accelerate. Among these upside risks, climate-related risks seem more pressing than ever, reinforced by the latest El Nino. Unprecedented non-linearities in global temperatures, illustrated on the left-hand side of this slide, mean that dangerous tipping points may be reached more quickly than previously expected. We have recently observed a sharp rise in the number of extreme weather events threatening harvests and tourism. Crucial water rules, such as the Panama Canal are drying up, causing new supply chain disruptions. The right-hand chart shows that a few commodity prices have already increased sharply in recent months, but most of the effects are likely to become apparent only in 2024. On the downside, there is a risk that the effects of monetary policy could unfold more forcefully over the medium term. For example, while the increase in the share of household loans with a fixed interest rate implies that the impact of the increase in policy rates on households' net interest income has been fairly limited so far, these effects could accumulate over time when more loans have to be refinanced at higher rates. This slide shows that on net, respondents in our survey of professional full-casters judge that the balance of risk for inflation in 2025 remains tilted to the upside. Respondents also see upside risks to inflation over the longer term. You can see this in the left-hand chart. The distribution of inflation expectations for 2028, this is the dark blue line, continues to show a fat right-hand tail, with the significant probability for inflation outcomes being above 2.5%. The right-hand chart shows that option prices in financial markets also suggest upside risks to inflation. At our upcoming meetings, we will carefully weigh these and other relevant risks. Should we judge that the policy stance is inconsistent with the timely return of inflation to our 2% target, a further increase in interest rates would be warranted. In an environment of tight labour markets and structural inflationary headwinds, this would also ensure against the continued elevated risk of inflation remaining above our target for too long. By contrast, should our assessment of the transmission of monetary policy suggest that the pace of disinflation is proceeding as desired, we may afford to wait until our next meeting to gather more evidence on how the slowdown in aggregate demand will feed through to price and wage setting over time. Under this data-dependent approach, we cannot predict where the peak rate is going to be, or for how long rates will have to be held at restrictive levels. We also cannot commit to future actions, meaning that we cannot trade off a need for further tightening of monetary policy today against a promise to hold rates at a certain level for longer. Such a promise would raise time inconsistency issues. If investors anticipated that the central bank in the future might renege on its promise if economic conditions change, they would not price a future path of short-term interest rates that would result in sufficiently restrictive financing conditions. Ultimately, the incoming data may well prescribe holding rates at restrictive levels over a significant period of time. The degree of restrictiveness will also depend on the evolution of inflation expectations, as what ultimately matters for consumption and investment is real interest rates. The past few weeks have highlighted the pertinence of this consideration. As my final slide shows, real risk-free rates have declined across the maturity spectrum and have fallen back to levels prevailing in February, as investors have revised their expectations for economic growth, inflation and monetary policy. This could counteract our efforts to bring inflation back to target in a timely manner. By setting monetary policy, meeting by meeting, with an open mind and based on the incoming data and an assessment of the risks to the inflation outlook, we can take such developments into account to ensure that the key ECB interest rates are set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2% medium-term target. Thank you very much.