Following a period of subdued consumer price changes, inflation has recently surged to levels that are significantly impacting the behavior of households and firms. Although the underlying sources of inflation differ across major advanced economies, central banks have progressively tightened their monetary policy stance since late 2021 to ensure a prompt return to price stability.In the current macroeconomic discourse, inflation expectations have gained considerable attention. A suitable monetary policy response, aimed at anchoring these expectations to central bank targets, is crucial to minimizing the risk of a wage-price spiral, which could result in higher and more persistent inflation. This is especially important in the face of significant shocks such as the recent surge in gas prices in Europe, which has caused a decline in terms of trade that cannot be reversed but should be absorbed swiftly, with a view to protecting the most vulnerable members of society. Attempts to recover purchasing power losses in a generalized backward-looking manner could prolong the high inflation rates resulting from the rise in energy prices. This, in turn, could affect inflation expectations and give rise to second-round effects, which must be countered through more restrictive monetary policy measures.Thus, the crucial question that central banks face today is how to conduct monetary policy appropriately in these complex and highly uncertain times. To address this question, this paper will first briefly review the essential role of inflation expectations in the monetary transmission mechanism. We will then consider the issues related to their measurement and interpretation. Based on these theoretical and empirical considerations, we will discuss the recent evolution of inflation expectations in the euro area and draw some conclusions for the current and potential future conduct of the ECB's monetary policy.Monetary policy has a gradual and lengthy impact on the real economy and inflation through a complex system of channels known as the monetary transmission mechanism. Although central banks' actions and communications immediately affect financial market interest rates and asset prices, their transmission to households and businesses' financing conditions and subsequently to consumer prices is typically much slower.In this process, inflation expectations play a vital role, representing economic agents' beliefs or predictions about future price changes. These expectations shape the behavior of households and businesses, which, in turn, influence overall price dynamics. For example, in response to the expectation of a broad increase in the prices of goods and services, workers may demand higher wages, and firms may raise their prices. Under certain conditions, this behavior could result in a self-fulfilling prophecy, fuel actual inflation, and make it dangerously persistent.In macroeconomic models, the role of expectations is generally summarized by the augmented Phillips curve. This curve initially examined the relationship between wage growth and unemployment in the UK in the 1950s. Later studies focused on consumer price inflation and unemployment, which showed that in a booming economy, high employment and demand could cause workers to demand higher wages, and firms could raise their prices, and vice versa in a contracting economy. This relationship represents a reduced form of more structural models that determine production, consumer prices, and wages.With respect to wage inflation, macroeconometric models attempted to account for the role played by previous inflation in the bargaining process, which aimed to catch-up with actual inflation through explicit indexation clauses or anticipate future price changes by extrapolating them from past data. In this sense, the notion of an augmented Phillips curve was not new, but the role of expectations in shaping actual economic dynamics had been previously neglected. Expected inflation, therefore, became the primary additional factor in "modern" augmented Phillips curves.Although much has been added and debated over the last forty years, the empirical relevance of the Phillips curve has been progressively uncertain since the late 1980s, possibly due to the increasing perceived effectiveness of central banks in stabilizing inflation. Notably, a considerable reduction in the response of wage and price inflation to demand pressures in goods and labor markets