The European Central Bank’s (ECB) operational definition of price stability – a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) below 2 per cent over the medium term – has in practice provided room to accommodate temporary adverse price shocks. In the May 2003 review of its monetary policy strategy, the ECB reiterated its definition of price stability, and clarified that it aims to maintain inflation below, but close to, 2 per cent over the medium term in line with its past conduct of policy. This clarification was made to underline, inter alia, the need to provide a sufficient safety margin against the risk of deflation, which was a prominent concern at the time. The ECB’s policy conduct is symmetric – i.e. entailing policy responses that seek to counter both upward and ...