rates will remain unchanged. The starting position for the ECB is difficult. There are signs of easing inflationary pressure. At the same time, however, it remains uncertain whether price pressures have reversed and how the economy will fare.
One of the most important factors for assessing future price pressures is the development of incomes, i.e. wages and profits of companies and incomes of the self-employed. The question is to what extent wage growth will accelerate as a response to high inflation and whether companies will absorb higher personnel costs or pass them on in the form of price increases. The latest data for the second quarter gave the all-clear on both counts.
Discussions within the Governing Council will likely revolve around whether more weight should be given to the modest measurable successes in fighting inflation to date, or to a set of indicators that suggest declining inflationary pressures in the future. One compromise could be an agreement to pause interest rate hikes. Statements from members of the Governing Council regarding the upcoming meeting were mixed.
To be able to measure “underlying” inflation, the ECB makes use of a number of different indicators. We will explain two of them in more detail: the HICPIX and the PCCI.