significant forecast errors by major professional forecasters, central banks and policy institutions since the start of the pandemic. disentangling the “ signal ” on headline inflation from the “ noise ” has become increasingly difficult. underlying inflation measures have therefore become an important pillar in assessing the inflation outlook and risks. [ 9 ] these measures aim to capture more persistent price developments ( for instance, by excluding more volatile items from headline inflation ) to provide a clearer signal for medium - term inflation developments. however, a key challenge is that the standard set of measures of underlying inflation continue to be contaminated by past energy shocks, supply disruptions and reopening dynamics. since the start of the pandemic, the accuracy of both headline and core inflation projections one or two years ahead has in fact deteriorated significantly. each indicator has its advantages and disadvantages and the performance of different measures can change over time. it is therefore important to monitor a wide range of indicators of underlying inflation. that said, there are currently two clear messages. first, while underlying price pressures remain strong, most indicators have started to show some signs of softening. second, while still wide by historical standards, the range of measures of underlying inflation recently began to narrow. this suggests that the unusually high level of uncertainty around the downward trajectory of inflation over the medium term has started to ease somewhat. a closer look at some of these indicators however, reveals that some are levelling off only recently. as the indirect effects of past energy price shocks and other pipeline price pressures gradually fade, labour costs – an important component of prices in the services sector – are becoming a dominant driver of inflation. wage pressures are rising and we have factored strong wage growth into our inflation projections. compensation per employee rose by 5. 2 % year on year in the first quarter of 2023 and is expected to continue to grow strongly in the coming months. at the same time, firms in some sectors ( such as trade, transport, accommodation and food ) increased their profits, especially where demand outstripped supply. [ 11 ] looking ahead, this may offer firms room to absorb the impact of wage increases on prices as other input costs moderate. the june 2023 eurosystem staff projections assume a downward trajectory for firms ’ profit margins along these lines. given the crucial role of labour costs in the outlook, we are closely monitoring inflation dynamics in the services sector where these costs play a particularly important role. the ecb ’ s monetary policy response in response to the

and securities settlements – in real time – within a single european infrastructure. the common settlement platform t2s will increase cost transparency and investors will be able to choose the provider on the basis of costs and services rather on the location of the security. therefore, t2s will increase trading activity in the market, reduce trading spreads, increase competition and lower service prices, and thus improve welfare in general. exactly four months ago, on 17 july 2008, the governing council of the european central bank ( ecb ) finalised the decision to build t2s, given the widespread support of european csds and the confirmation of their intention to use the system once it is in operation. the development and operation of t2s has been assigned to four central banks in the eurosystem, namely the deutsche bundesbank, the banco de espana, the banque de france and the banca d ’ italia, and i am convinced that they will continue the good tradition of the “ 3cb ” ( the deutsche bundesbank, the banque de france and the banca d ’ italia ), the providers of the target2 payment system. the eurosystem is actively supporting non - euro area central banks, as well as local csds and market participants, as the banks decide on whether to include their currencies in t2s. danmarks nationalbank has already decided to do so and the central banks of sweden, switzerland and the united kingdom were invited to express their opinion on this issue. their participation would, for me, make t2s even more successful. i believe that t2s will bring tremendous economic benefits, will foster the necessary competition and will crucially to speed up financial market integration, also in the field of bond and equity markets, to the benefit of financial market participants and the citizens of europe. the single euro payments area now i will turn to sepa, the key project for advancing the integration of european market infrastructures in the field of retail payments. you may ask : why are retail payments important at this time of unprecedented financial turmoil? in response, i would tell you that the retail payments business generates about one - quarter of all banking revenue. therefore, it needs to be as integrated, efficient and reliable as possible. sepa is a private sector initiative, led by the banking industry. it has not been an easy road for the european banks, but it is important not to waver now. the resulting integrated and modern retail payment infrastructure will make