Speech by Isabel Schnabel, Member of the Executive Board of the ECB, at a conference organised by the European Central Bank and the Federal Reserve Bank of Cleveland’s Center for Inflation Research on “Inflation: Drivers and Dynamics 2023”

Frankfurt am Main, 31 August 2023

After more than a year of significant monetary tightening, the outlook for the euro area remains highly uncertain. Activity has moderated visibly, and forward-looking indicators signal weakness ahead. But important pockets of resilience remain, especially the labour market.

Headline inflation has come down, mainly on the back of previous supply-side shocks unwinding. But underlying price pressures remain stubbornly high, with domestic factors now being the main drivers of inflation in the euro area. Therefore, a sufficiently restrictive monetary policy is critical for bringing inflation back to our 2% target in a timely manner.

I would like to start my remarks this morning by discussing the drivers behind the…