♪ >> inflation expectations are back. i think the fed is going to need to recognize this risk over the next year. >> the market is becoming more concentrated and less contestable. >> right now people are focusing on low-quality stocks, whether they are mima or not -- whether they are meme or not. >> i think inflation is going to run. that is a good sign. that is an economy getting back on track. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. lisa: is there an exit strategy,

and does it matter? good morning. this is "bloomberg surveillance" on bloomberg radio, bloomberg television. romaine bostick once again coming and joining us for the rest of the show. there's a question here. we've got summer stasis ahead of key data ahead of the ecb, the federal reserve very much and focus. how significant is it that there are no signs of caution, that people basically have faith they have it under control and can exit when they wish? tom: stability is there. there's no question about it. romaine has alluded to the equity markets, solid as a rock. whether it is the theory of deutsche bank out three years, that peter hooper conversation of earlier this morning, or it is ian lyngen at bmo capital looking at the short short market. , everyone is assuming they get the calculus right. lisa: which raises the question, what i, datapoint will move the

needle -- what economic data point will move the needle? tom: there will be a moment. there will be some big, fancy tantrum of some type, but it is not going to be one moment. it will be a set of data. lisa: we are hearing from the likes of mike wilson that you are going to get some sort of correction in equities. are there significant signs of caution at this point? romaine: there's a lot of signs of caution. there's not a lot of hedging, but you are seeing persistent rotation. instead of pulling cash out of the market, they assume a safer corner of the market here. i think when you start to get concerned is when you see those flows actually come out of the market, on to the sidelines, and back under the mattress where keene keeps his. tom: you've got that right. lisa abramowicz -- lisa

abramowicz adamant that the claims are more important. one of our more elderly listeners today had a faux pas over the beauty of grace kelly. it was not grace kelly that danced with fred astaire. it was young ginger rogers who danced with fred astaire. guys, this was a few years ago. lisa: breaking news. tom: we always correct on "surveillance." save me with a data check. i'm looking at red and green on the screen. the vix, 17.17. i don't think we have gone anywhere in six weeks. romaine: not really. 4200 on the s&p for the past seven weeks, camped out there. the market in relative stasis. you are seeing little but of a bid coming to some of the tech stocks, but not much here. i don't think you will see much of a bit until we get a little bit more clarity out of the fed.

1.50% on your 10 year yield. i think a lot of folks say if we continue to hang out right at this level, you have to start to wonder whether the next step has to be down. that bid coming into treasuries, we sought with the auction yesterday. that may persist today. tom: guy johnson scheduled to join us from cornwall on the signing of a new charter between the united kingdom and the united states. geoffrey yu joins us of bny mellon. the zeitgeist right now, the certitude is it has been one big short squeeze. everyone was betting on lower bond prices and higher yields, and the trade has swung with acceleration the other way. do you buy it, that it is just a short squeeze? geoffrey: perhaps heading into the summer months, some people just don't want to take too much risk on in either direction. given the experience of the past few years, the response means

actually having an equity response. lisa: the unit should take that -- do you need to take that? [phone ringing] [laughter] lisa: we are looking at a bond market, and a lot of people are saying it is endorsement of the fed's view that inflationary impulses are going to be short-lived and we are going to end up in the slow inflation environment we have been in for the past several decades. do you agree? geoffrey: bonds want to know which type of inflation the fed is actually targeting. we've actually had two straight months of soft wage growth now, in germany, and eurozone, boe saying that wage growth is not that strong. the most hawkish region in the world right now, central europe. jobs and wage growth is not

accelerating the same pace as during the pandemic. so should we be targeting this, or is the market taking a pet that short-term -- taking a bet that short-term supply constrains are going to be permanent? romaine: how many cues should we be taking from the commodities market? we still see oil, brent crude camped out around $72. you have a lot of the base metals that are rather at were near their record highs that they set back in april and may. how much concern should be baked into reading those prices right now? geoffrey: the market is very concerned, but if you look at what policymakers are doing, what was the biggest marginal price search? china, and china is saying commodity prices are too high. they are blaming consolidation as well. on the other hand, they are blaming global central banks as well. they are saying the federal reserve, ecb, you are printing too much money and we have to deal with the consequences.

so china continues price controls as much as they can. we should be concerned at a combination of tightening by china and globally to contain prices. tom: i am going to suggest that our radio and tv listeners' he ads are spinning on all of the econo bible out there econo -- all of the econo babble out there. if you are with bny mellon, you've got to have a full understanding of the phrase wicked. what does the x axis look like for geoff yu? what does your continue look like from now out one year, out two years come out three years? geoffrey: i'm looking at what the ecb will say in september,

talking about tapering. if you are looking at eastern europe, they are looking for advancement already have a full rate cycle being priced in over the next 18 months or so. you're seeing some of that within scandinavia, australia and new zealand. the list goes on and on. i don't think we should be blase and go boj, like five-year expeditions or whatever. it is much more about the short term. within the next three months, we need to see whether the supply issues are indeed short-term, but if they are going to be persistent, central bank's will probably have to move. lisa: so what should we be doing right now? geoffrey: reading the tea leaves in terms of central banks. probably we are in a holding pattern heading into august and september. you want to be light on risk, but start to factor in upside surprises for vol and for inflation. jackson hole coming up, where there is more communication. german elections, is it going to be a new era for europe? the u.k. furlough scheme coming

off and the boe will decide whether they want to support the new regime. i think all of this could actually happen within the next three months, so those waiting for another year or so my think that is going to be too late. risk light heading into summer, but you want to have risk on heading into august and september. romaine: any confidence in the trade of being short government bonds? geoffrey: that is still going to be highly contingent on what the fed does in the short-term. volatility is going to pick up, so you want to own fixed income volatility, but buyers are going to give the range in place because that kind of tightening is going to be a step too far persons were banks for the time being. tom: geoffrey yu, thanks so much. greatly appreciate that this morning. as it becomes active here in cornwall between the united kingdom and the united states, the g7 meeting starting really tomorrow, i should point out

really interesting headlines. one from earlier that i missed, president biden says we are not seeking conflict with russia. a number of other ideas here, particularly around vaccination. a really important headline in the firestorm of news flow earlier this morning. the president says he will tell the united kingdom's johnson he must protect the good friday agreement. of course, this is on northern ireland and ireland. "the times of london" reporting earlier today the idea that if there was a formal statement by the state department. our jennifer jacobs reporting, aggressively pushing against what we have heard from the british press this morning. jennifer jacobs saying there is no written agreement, making clear there has been language, but that is done within a collegiality. lisa: that is the key issue here, the idea of tone, the idea of mood, of trying to come to

some sort of friendship, alliance to regain that kind of bon ami -- kind ofbon amis there once -- the kind ofbon amis -- that kind of bon amis there once was. tom: that's what we try to have with jon ferro and remain. romaine: i do feel chummy chum my. tom: i look at the equity markets, and the heart of the matter for our listeners and viewers, bonds, foreign-exchange, they want to know what to do with their 401(k), and it is a mystery right now within this great bull market, and the bon amis of what the fed has wrought. romaine: a lot of folks moved to the sidelines, and a lot of those folks turned out to be wrong. tom: we say with great respect, stephen roach writing a number

of days ago he has never been more wrong than the recovery of this giant pandemic bull market. stay with us. the dow, 44,383. we quote that for jon ferro. lisa: wicked. tom: stay with us on radio, on television. ritika: with the first word news, i'm ritika gupta. just a few minutes from now, we will get those latest numbers on inflation in the u.s. the consumer price index is out at 8:30 a.m. your time. according to the -- a.m. new york time. according to the bloomberg economic index, inflation will hit 4% for the year ending in may, the highest since august 2008. the u.s. and china have agreed to push forward trade and investment links. that came out of the first call between commerce ministers from the who countries -- from the two countries since the start of

the administration. the u.s. plans to buy 500 million doses of pfizer's coronavirus vaccine to share internationally. the word came as president biden prepared to join other group of seven leaders in a campaign to end the pandemic by disturbing shots worldwide. g7 leaders have gathered for their summit in the u.k.. more problems for deutsche bank as it heads into the second half of ceo christian sewing's turnaround plan. germany's biggest lender warned of a 200 62 5 million dollar hit after a german court allowed some clients to challenge higher fleas -- higher fees. bloomberg has learned that united airlines is an advanced talks to buy at least 100 boeing 737 max jetliners, part of a broader fleet revamp. they see it as a time to advance when boeing and airbus are hungry for deals. global news 24 hours a day, on

air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> government bonds, the best on the treasury curve, we think

is going to be longer end, 30 year bonds. if absolutely nothing happens, the 30 year is where we really like. but in a global portfolio, you have to diversify. tom: yields move lower and stun. stephen major once again dead on hsbc. others have been with him on that. good morning, gary shilling and the art of disinflation. very quickly here before we take precious time with guy johnson, to go out to 30 years as a duration move, you're not seeing many people take. lisa: although you are seeing people encourage that kind of duration move as if it were to go back to low-inflation, other people think the federal reserve will have to move much faster than people expected to stave off inflation and potentially lead to a lower inflation longer-term kind of view. tom: 11 minutes away from key

economic data on cpi and claims. michael mckee will drive the conversation forward. right now, again in cornwall, guy johnson. the g7 meeting starts tomorrow. right now we will have truly the pageantry of this president with the prime minister. it is a bilateral. what is the first thing that they will bilateral about? guy: well, they are hoping to start broadbrush, an atlantic charter. there's an aircraft carrier over my shoulder that is sailing up and down, a symbolic gesture to this event in place. in terms -- events taking place. in terms of the concrete details, that remains to be seen. we are waiting to see whether there will be some sort of commitment to reopening the atlantic. boris johnson hoping to get a commitment broadly from this

group in terms of delivering vaccines to the world. that's will certainly be a concrete take away from this event. i think he is hoping as well that we will be able to talk about reopening the north atlantic as well. in terms of the pageantry of the event, the atlantic charter to be signed, hopefully an improved relationship between london and washington. i think brexit will certainly be part and parcel of the narrative. northern ireland will feature. nevertheless, the hope is that this is a rekindling of the relationship. tom: for those of you on radio, a spectacular shot of guy johnson in the sun and the sand of cornwall, and in the distance, i believe the prince of wales. you are killing it. but seriously here, when i look at the atlantic charter, you are talking some real history here.

what does the prime minister want to accomplish given brexit and given the demand that britain needs global trade? guy: boris johnson wants to position the u.k. as an international power. he wants to position the u.k. as global britain. i think this g7, what is happening later on this year is part of that positioning. from a diplomatic interview, he needs to put the u.k. on the world stage and he needs this whole summit to go very well. part of that clearly is his relationship, huge part of that is his relationship with joe biden. it is unclear at this point whether angela merkel is going to have a bilateral with the president at this meeting. that may wait for nato. it may wait for the eu summit next week. so he needs to put britain firmly at the center of that stage, and bringing the president here and having that symbolism and the visuals i

think is very important, both for him domestically and the perception of britain internationally. lisa: i love that we are talking symbolism, pageantry, not talking about much action. this comes at a pivotal time for not just the vaccinations, planning to send vaccines across the world to try to help vaccinate less fortunate nations without the vaccine. there's a question of whether anything else will get done on taxes, uncoordinated in change policy. is there anything concrete that could get done? guy: i think the vaccine is important, i don't think we should play that down because i think it links to a whole range of other aspect of what the g7 is hoping to achieve. the g7, boris in particular wants to position the g7 for the

summit in glasgow. he needs nations struggling to get their country vaccinated to be on board with that process. many of them are saying we won't be able to deliver on climate if you can deliver on vaccines, so getting that done is hugely concrete. i think you will see a coming together of these nations. joe biden wants to position these nations as a club of democracies, and wants to position them in a way that he can push back on autocracies. russia, he once a strong line to come out of this g7 on russia. it is no accident he's meeting at the g7, then nato, then the eu, then going to russia. i think you can take that away is something that is going to be concrete, the fact that these countries are coming together. whether china is mentioned specifically or not, i think china falls within the same cast, so i think they're going to be differences -- so i think there are going to be differences between the eu and the u.s. on china. romaine: i am curious, the idea

here that the biden adminstration is not only looking for the u.k. to be a much more reliable ally on the global stage, but the idea that biden also needs europe on board as well, is there a way that that circle can be squared, given some of the contentious issues that are still on the table between the u.k. and the eu? tom: --guy: i think you need to put brexit to one side. exit is a thorn in the side of the eu and the u.k. i don't think the biden adminstration is going to wade too deeply into that relationship. it is going to want to make clear it does not want to see anything that would damage the good friday agreement, but broadly beyond that, i don't think that the u.k. and germany and france and italy are necessarily on different pages when it comes to the issues such as china and russia.

i think that is where maybe there is potential common ground. i think when angela merkel and the president sit down, they will talk about things like nord stream. there are differences in terms of the shifting positions we see. there is concern in europe about what is happening with russia. there's growing concern about what is happening with china. tom: guy johnson, thank you so much. greatly appreciate it from cornwall. a beautiful scene with the beaches behind. the prince of wales tooting about -- the prince of wales tweeting about being ready for the g7 meetings. it looks like a scene from a famous series "pull dark -- "poledart."

lisa: why is that a theme now? tom: guy johnson's ancestors were there. that's why he's there in cornwall. we have jobs data. we have michael mckee on radio and tv, next. ♪

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tom: bloomberg surveillance, good morning. the yield, 1.4941% as we move to the inflation and claims reports. to do that, michael mckee joins us. michael: we are watching the numbers. they come in for cpi stronger-than-expected, the month over month change in may was .6%. that is lower than it was last month, .8%. higher than the forecast of .5% gain. for the core it is a .7% rise, .2% more than the .5% gain forecast. on a month or month basis -- it was .9% the prior month. the index for used cars and

trucks continues to rise sharply. 7.3%. up 10.2% last month. food up .4%. energy unchanged. gasoline prices did decline, but that is seasonal be adjusted. they accept them to go up -- they expect them to go up. let's see if there are any other quick notes. i will go farther down. jobless claims, we should get that in. initial jobless claims 376,000, that is a drop from the initially reported 385,000 last month. an improvement, but not a great improvement. tom: i will do a data check. this is more important than christine lagarde and the ecb right now. at three basis point move in the 10 year yield gets your attention. lisa: especially given the fact people waited for a second.

they started to parse through the data and started to sell. you are seeing yields creep higher, 1.52%. you see it continuing to climb as people look through the data points. what will be the distinction between temporary and transitory? tom: the real yield comes in from an negative point 85 to .82 . a lesser real yield. a low bit of softness in the equity market. romaine: a pretty significant reaction, at least a knee-jerk reaction to the downside in regards to equity futures. interesting to see if some of the losses get pared. if you start to see things higher-than-expected, you will always get a low bit of reassessment by folks in the equity market. tom: a higher yield is how we would call it with the attendant futures. on radio those are abrupt moves but i would call them contained.

michael mckee looking through 32 pages of inflation data. everyone thinks it is two numbers but it is pages and pages. are we talking about tomatoes? used cars? michael: it is pre-much the same story as it was last month. the transportation numbers as people go off on vacation. hotels, car rentals, lodging away from home. that drops back to a .4% rise from 7.6%. owners equivalent rent does rise. that is the way the government calculates the idea. up .3%. everybody wonders when that will change because home prices have been up so significantly. used car prices up 7.6%. tom: that is one month. michael: yes. airline fares were up 7%. much the same story. tom: on page 23, summer camp up

42%. lisa: just 42? i thought it was a little bit higher than that, especially after a year of kids being at home. i am looking at ex-food food and energy, it came in hotter than expected. we know when you go to the grocery store it is getting more expensive. when you know when you fill up your tank it is getting more expensive. is it telling this metric is hotter than people expected? how instructive is that? michael: it is not at this point. it is a matter of looking at the individual categories and see if we are seeing a broad change in prices, a broad upward move. while we are seeing many more categories rising, they are not rising by all that much in most cases. it does seem to be some of these factors the fed would point to as transitory, almost like normalization. i think reflation is a good term as opposed to inflation because

airline fares went way down turnley pandemic because nobody was flying -- way down during the pandemic because nobody was flying. they were below last month where they were before the pandemic. tom: with markets on the move and a 1.51 in the 10 year, we will stay with michael mckee as christine lagarde speaks. reaffirming the headlines. the key one for me, premature tightening poses risk to growth. romaine: going back to mike's point about the nature of the transitory, there is stickiness not only in the data we have seen come up a lot a lot of the anecdotal evidence on what consumers are paying on the ground, whether it is the grocery store or elsewhere. i wonder whether the price increases can be transitory if corporations are going to roll those prices back once we get past this period. it is something i worry about and i wonder if that is why we

are seeing 70 distortions not only in the data, but asymmetry into what people are predicting with regards to the economist forecasts and where the data is coming in. michael: prices are sticky so you will not see people rolling back prices. the issue is do we raise prices to take into account the supply-chain problems we are having and the more money we have to pay to get things back to normal, or do we keep raising prices because we are in an environment where prices keep going up. if you want to go to the beginning of price pressures, you look at lumber prices and copper prices, two of the biggest inputs to homebuilding, those prices have rolled over and are starting to go down. markets do tend to clear. if this is supply chain issues that should be something we get through. it depends on the timing. by the way, the 5% gain in the headline cpi is the most since 2008. 3.8% for the core is the most

since 1993. tom: is not the 12% or 14% of 1997. still relatively contained. i got a wonderful email from people watching. real earnings still negative. what is the symbolism, it is a secondary statistic but i have every guest telling me -- i do not see it when real earnings are negative. michael: we are still in a period when those numbers will be distorted by the composition effects, who is in the labor market and who is getting paid. that is the problem. it is not so much real weekly earnings matter. it would be what you have in the bank and the extended unemployment benefits and the stimulus checks and things like that made up for some of those losses in real earnings. before we go, i will confirm your worst fears.

not only your summer camp fears. euro-dollar, you have to -- your daughter, you have to outfit her for camp? girls apparel up 5.2%. tom: that is called the mandy -- the brandy melville affect. nick from the boston red sox is only making 613,000 a year. his real earnings should be higher. michael: based on performance, certainly yes. tom: that will move the needle next month. we say good morning to all of you in europe, leading on christine lagarde's question-and-answer period. right now i believe she is in the statement at the european central bank. let's listen in. pres. lagarde: tltro three plays a crucial role in supporting bank lending to firms and households. our measures help to preserve favorable financing conditions

for all sectors of the economy, which is needed for a sustained economic recovery and for safeguarding price stability. we will also continue to monitor developments in the exchange rate with regard to the possible implications for the medium-term inflation outlook. we stand ready to adjust all our instruments as appropriate to ensure inflation moves towards our aim in a sustained manner. let me now explain our assessment in greater detail, starting with the economic analysis. in the first quarter of the year , euro area real gdp declined further by .3% to stand 5.1% below its pre-pandemic level of the fourth quarter of 2019.

business and consumer surveys and high-frequency indicators point to a sizable improvement in activity in the second quarter of this year. business surveys indicate a strong recovery in services activity as infection numbers decline, which will allow a gradual normalization of high contact activities. manufacturing production remains robust, supported by solid global demand, although supply-side bottlenecks could cause some headwinds for industrial activity in the near term. indicators of consumer confidence are strengthening, suggesting a strong rebound in private consumption in the period ahead. business investment shows

resilience despite weaker corporate balance sheets and the still uncertain economic outlook. we expect growth to continue to improve strongly in the second half of 2021 as progress in vaccination campaigns allows a further relaxation measures. the recovery in the euro area economy is expected to be buoyed by stronger global and domestic demand as well as by continued support from both monetary policy and fiscal policy. this assessment is broadly reflected in the baseline scenario of the june 2021 euro system acro economic projections for the euro area. these projections foresee annual real gdp growth at 4.6% in 21,

4.7% in 22, and 2.1% in 2023. compared with the march 2021 ecb staffed macro economic projections, the outlook for economic activity has been revised up for 2021 and 2022 while it is unchanged for 2023. overall, we see the risks surrounding the euro area growth outlook as broadly balanced. on the one hand, and even stronger recovery could be predicated on brighter prospects for global demand and a faster than anticipated reduction in household savings once social and travel restrictions have been lifted.

on the other hand, the ongoing pandemic, including the spread of virus mutations and its implications for economic and financial conditions continue to be a source of downside risk. according to eurostat flash release, the euro area annual inflation increased from 1.3% in march to 1.6% in april and 2% in may 2021. this rise was due mainly to a strong increase in energy price inflation, reflecting sizable upward base of facts, as well as my -- as well as month on month increases and to a lesser extent a slight increase in nonenergy industrial goods inflation. headline inflation is likely to

increase further towards the autumn, reflecting mainly the reduction in germany. inflation is expected to decline again at the start of next year as temporary factors fade out and global energy prices moderate. we expect underlying price pressures to increase somewhat this year, owing to temporary supply constraints and the recovery in domestic demand. nevertheless, the price pressures will likely remain subdued overall, in part reflecting low wage pressures in the context of still significant economic slack in the appreciation of the euro exchange rate. once the impact of the pandemic fades, the unwinding of the high level of slack supported by

accommodative monetary and fiscal policies will contribute to a gradual increase in underlying inflation over the medium-term. survey-based measures and market-based indicators of inflation expectations remain at subdued levels, although market-based indicators have continued to increase. this assessment is broadly reflected in the baseline scenario of the june 2021 euros system staff macro economic projections for the euro area, which foresees annual inflation at 1.9% in 2021, 1.5% in 2022, and 1.4% in 2023. compared with the march 2021 ecb staffed macro economic projections, the outlook for

inflation has been revised up for 2021 and 2022, largely owing to temporary factors and higher energy price inflation. it is unchanged for 2023, as the increase in underlying inflation is largely counterbalanced by an expected decline in energy price inflation. hi cp inflation, excluding energy and food, is projected to increase from 1.1% in 2021 to 1.3% in 2022 and 1.4% in 2023, revised up throughout the projection horizon, compared with the march 21 projection exercises. turning to the monetary analysis, the annual growth rate

of broad money declined to 9.2% in april 2021 from 10% in march and 12.3% in february. the deceleration in march and april was due partly to strong negative base of facts, as the large inflows in the initial phase of the pandemic prices dropped out of the annual growth statistics. it also reflects a moderation in shorter-term monetary dynamics, mainly originating from weaker developments in deposits by households and firms in april, and lower liquidity needs as the pandemic situation improves. the ongoing asset purchases by the euro system continue to be the largest source of money creation, while also decelerating the narrow monetary aggregate has remained the main

contributor to broader money growth. it is a strong contribution is consistent with a still heightened preference for liquidity in the money holding sector and a low opportunity cost of holding the most liquid forms of money. the annual growth rate of loans to the private sector declined to 3.2% in april from 3.6% in march and 4.5% in february. this decline took place amid opposing dynamic in lending to nonfinancial corporations and households. the annual growth rate of loans to nonfinancial corporations fell to 3.2% in april after 5.3% in march and 7% in february. the contraction reflects large

negative base affects and some frontloading and loan creation in march relative to april. the annual growth rate of loans to households rose to 3.8% in april after 3.3% in march and 3% in february, supported by solid monthly flows and positive basic facts. overall, our policy measures, together with the measures adopted by national governments and other european institutions, remain a central to support bank lending conditions and access to financing. in particular, for those most affected by the pandemic. to sum up, a crosscheck of the economic analysis with the monetary analysis, confirm an

ample degree of monetary accommodation is necessary to support economic activity and the robust convergence of inflation to levels that are below but close to 2% over the medium-term. regarding fiscal policies, in ambitious and coordinated fiscal stance remains crucial as a premature withdrawal of fiscal support would risk weakening the recovery and amplifying the longer-term starting effects. -- longer-term scarring effects. policies should continue to provide critical and timely support to the firms and households most exposed to the ongoing pandemic and the associated entailment measures. at the same time -- and the associated containment measures. at the same time, fiscal measures should remain

sufficiently targeted in nature to address vulnerabilities effectively and to support a swift recovery in the euro area economy. the three safety nets endorsed by the european council for workers, businesses, and governments, provide important funding support. the governing council reiterates the key role of the next generation eu package. it calls on member states to deploy the funds productively, accompanied by the productivity enhancing structural policies. this would allow the next generation eu program to contribute to faster, stronger, and more uniform recovery and would increase economic resilience as well as the growth potential of member states economies. in doing so, the program would support the effectiveness of

monetary policy in the euro area. such structural policies are particularly important in improving economic structures and institutions and in accelerating the green and digital transitions. we are now ready to take your questions. thank you. >> thank you, president lagarde. the first question goes to isabella. >> good afternoon and thank you very much for the opportunity. i have a question on the meeting. president lagarde, may you tell us how was the discussion of the governing council meeting today? how is the mood as you said uncertainties remain, and what prevailed in the discussion as you decided to confirm the very accommodative monetary policy stance? thank you. pres. lagarde: thank you for that open question because it

gives me a chance to tell you a little bit about how this meeting went. let me start with what i would -- what would be my take away of the overall analysis we conducted, the joint assessment we had in the conclusion we reached. i would say steady hand. let me drill a little bit into that. we spent a lot of time looking at the quarterly staff projections. went deep into each and every item of those projections. in-home inclusion of the work, i think i could say we were somewhat more optimistic about the economic outlook than we were three months ago. the latest signal we are getting

signals a strong rebound, which is starting with the second quarter. hopefully will be amplified in the third quarter. we took that moderate optimism from the fact that number one, we are seeing the vaccination rollout has accelerated significantly and is increasingly outpacing other advanced economies vaccination rollout, and second we are seeing containment measures are gradually lifted that should lead to a vigorous bounce back in that sector which was most affected, which is the service sector. when we look at the service pmi, it is clearly now in expansionary territory. it went up from just marginal 50 in april two now 55.2 in may. equally, when we look at the

sentiment that is regularly published by the commission, we are also seeing a sharp increase in may, actually the largest increase they had ever recorded. we expect private consumption to rise sharply as the containment measures are lifted. that is good news from the services point of view, which was most affected. when we looked at the manufacturing sector, which has earlier on been robust, it continues to be robust. when we look at the pmi manufacturing, it has stabilized at very elevated level, to be at 63.1% in may. we also looked into the supply-side bottlenecks that clearly have an impact in the short term on our inflation, particularly now but for the short-term outlook. that will create some headwinds. that is all on the positive front. we also acknowledged and looked

into those uncertainties we have on the horizon, which has to do with the evolution of the pandemic and how we see little nests of revival based on another kind of variant. we are also dependent on how fast the containment measures will be lifted, particular for those countries most sensitive to the service industry. the activities that are most factored of social non-distancing. if those containment measures are lifted early on, the tourism and a lot of transportation activities will pick up. that is in as we look forward. as a result of that, our staff increased their projection for 2021, 2022, and kept it at the same level in 23.

it has been revised up. the big job of the governing council after it has looked deeply into our projections and what we see in terms of macro economic situations, our job is to look at the financing conditions on the one hand and the inflation outlook on the other hand. we do conduct that joint assessment which we decided in december and confirmed again in march, and which was monetary policy reaction. on the financing front, we clearly see broadly stable financing conditions taking the corporate and household sector. there is a bit of an increase in the corporate sector, which is clearly attributable to two countries. one is the netherlands, the other is germany. this is probably attributable to

some tactical approach taken by those banks in those countries to take full advantage of the tltro's and to make sure they catch up with the commitments they have to take on the tltro's. overall, absent those particular factors, we see a little bit of tightening, very moderate. there is a potential that what we observed on the market interest rates is at risk of passing through to the financing conditions that are applicable to the corporate sector. for the household sector, not the case, because the financing of the household sector is at rock bottom at about 1.31% interest rate, which is never been so low. this is the first part of the joint assessment. i am happy to take you through the second part, which is also

critically important and has to do with inflation. maybe that is too long of an answer. shall i? you can take a long answer for good question. we do the joint assessment. as i said in the introductory statement, we are seeing some short-term improvement of the inflation number and our assessment for 2021 is 1.9%, which is clearly north of what we had in our last assessment. we did that throughout our discussions. we tried to dissect what is underneath and the lasting impact of some of those factors. i think it is worth reminding ourselves where we were a year ago. compared with where we are today. that is how inflation is calculated year-over-year. clearly a year about, a lot of activities went down. prices were under downward pressure.

the down movement we saw at the time is being compensated by upward movement we see in many of the prices that went down. a clear example of that is the energy prices, where if you remember the price of oil and all derivative products went way down and has now recovered. we see the base effect between 20 and 2021. we will see more of it because there is another base effect that will be attributable to the german vat. a year ago, the decline of vat in germany deliberately to support the economy and sustained demand, this has now been reversed. we will be seeing the base effect in the months to come, which is probably a reason why inflation in s