Inflation has been well anchored around but slightly above 2% despite large increases in energy prices. Rising energy costs are putting pressure on the prices of a wide range of goods and services but the feed-through has been muted compared with past oil shocks. The ECB has been removing monetary accommodation to address risks to price stability now that the recovery is on a surer footing. The pace of tightening has been influenced by what it sees as significant medium-term risks to price stability, although there are downside risks as well such as the possibility of a disorderly unwinding of global economic imbalances. Its risk assessment is influenced by the recent strong growth in money and credit aggregates, although there are questions about how reliable they are as guides for policy. Monetary policy is made more difficult by wage stickiness and inflation inertia. Greater labour market flexibility and more competitive financial and product markets would help speed up the transmission of monetary policy and reduce cyclical divergences across the euro area.