Lecture by Isabel Schnabel, Member of the Executive Board of the ECB, at the Ragnar Nurkse Lecture Series organised by Eesti Pank in Tallinn, Estonia

Tallinn, 30 August 2024

Disinflation in the euro area has proceeded rapidly. Headline inflation fell from a peak of 10.6% in October 2022 to 2.6% in July of this year. Data released yesterday suggest that in August inflation has declined further in parts of the euro area.

These are welcome developments. They largely reflect an unwinding of the forces that over the past three years have led to strong increases in the prices of energy, food and goods, as well as the impact of our restrictive monetary policy.

However, the current level of headline inflation understates the challenges monetary policy is still facing. In particular, domestic inflation remains high at 4.4%, largely reflecting persistent price pressures in the services sector, where disinflation has effectively stalled since last November.

While goods inflation has fallen back…