The European Central Bank (ECB) has been advised to closely monitor supply shocks impacting the economy. It is important for the ECB to respond decisively if there is a risk of inflation expectations becoming unanchored.

Maintaining stable inflation expectations allows for a more measured approach to monetary policy. However, if the threat of de-anchoring inflation expectations becomes significant, an aggressive pivot is necessary. The ECB must strike a delicate balance in its monetary policy strategy amid ongoing economic challenges.