Seasonally adjusted data suggest that prices of services recorded a quarter-on-quarter drop for the first time since the inception of the index. While this development was attributable to the sizeable fall in communication services, the rate of increase in other subcategories of services also slowed down (Figure 12). Specifically, annual rental inflation continued to fall steadily to an all-time low during the second quarter, which is a dramatic development (Figure 12). 4  BIS Review 133/2010  Prices of core goods excluding food, energy, alcoholic beverages and tobacco and gold, moderated in this quarter owing to euro depreciation as well as easing commodity prices (Figure 13). In line with these developments, core inflation indicators also declined in the second quarter (Figure 14). The downward trend in underlying inflation is also apparent in the recent course of seasonally adjusted data (Figure 15). It should be pointed out that the tax incentives in 2009 will put downward pressure on the annual rate of increase in core price indicators during July and October and that we expect core inflation indicators to remain consistent with medium-term targets in the upcoming period. BIS Review 133/2010  5  Accordingly, the uptrend in medium-term inflation expectations that started in the final quarter of 2009 slowed during the second quarter of 2010 (Figure 16). In fact, following the betterthan-expected price developments during May and June and the return of annual inflation to single digits, near-term inflation expectations were revised down markedly quarter-on-quarter (Figure 17).

But it will have to be clarified under what conditions it may be used for direct recapitalization of financial institutions. What’s important for our discussion is that exclusively euro-area countries are covered with the ESM. b.  CRD IV will apply to all 27 EU members and is close to be approved. The SSM has recently been negotiated for euro-area countries plus volunteers from other c. EU countries, but has not been approved yet. Germany is currently blocking its approval. Its political sensitivity is not negligible, but do not forget that “money” is not involved directly yet. Nevertheless, its future functioning will require money, and that will be crucial. d.  The single resolution and recovery rules for banks are proposed and meant for the whole EU27, while the resolution authority will most likely cover only the members of the SSM. All these are now under preparations and discussions, exactly as the new rules for the DGS. The resolution rules and the single DGS are where the political clashes will inevitably happen. Two reasons for that: 1. First, this is where the money enters. One has to realize that the incentives of the various countries and pan-European institutions are different. “Northern” countries want to cut the banking sectors of “southern countries” free from local politicians, but at no additional cost. ”Southern countries” want money. And many pan-European institutions and politicians across the board support anything heading towards a European political union. Different incentives mean different positions in negotiations. BIS central bankers’ speeches  1  2.