sharp price increases recorded in the autumn of 2022 will drop out of the yearly rates, thus pulling inflation down. inflation excluding energy and food fell to 5. 3 per cent in august, from 5. 5 per cent in july. goods inflation declined to 4. 8 per cent in august, from 5. 0 per cent in july and 5. 5 per cent in june, owing to better supply conditions, previous drops in energy prices, easing price pressures in the earlier stages of the production chain and weaker demand. services inflation edged down to 5. 5 per cent but was still kept up by strong spending on holidays and travel and by the high growth of wages. the annual growth rate of compensation per employee remained constant at 5. 5 per cent in the second quarter of the year. the contribution of labour costs to annual domestic inflation increased in the second quarter, in part owing to weaker productivity, while the contribution of profits fell for the first time since early 2022. most measures of underlying inflation are starting to fall as demand and supply have become more aligned and the contribution of past energy price increases is fading out. at the same time, domestic price pressures remain strong. 2 / 4 bis - central bankers'speeches most measures of longer - term inflation expectations currently stand at around 2 per cent. but some indicators have increased and need to be monitored closely. risk assessment the risks to economic growth are tilted to the downside. growth could be slower if the effects of monetary policy are more forceful than expected, or if the world economy weakens, for instance owing to a further slowdown in china. conversely, growth could be higher than projected if the strong labour market, rising real incomes and receding uncertainty mean that people and businesses become more confident and spend more. upside risks to inflation include potential renewed upward pressures on the costs of energy and food. adverse weather conditions, and the unfolding climate crisis more broadly, could push food prices up by more than expected. a lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. by contrast, weaker demand – for example due to a stronger transmission of monetary policy or a worsening of the economic environment outside the euro area – would lead to lower price pressures, especially over the medium term. financial and monetary conditions our monetary policy tightening continues to be transmitted strongly to broader financing conditions. funding has again become more expensive for banks, as savers are replacing

christine lagarde : ecb press conference - introductory statement introductory statement by ms christine lagarde, president of the european central bank, and mr luis de guindos, vice - president of the european central bank, frankfurt am main, 14 september 2023. * * * good afternoon, the vice - president and i welcome you to our press conference. inflation continues to decline but is still expected to remain too high for too long. we are determined to ensure that inflation returns to our two per cent medium - term target in a timely manner. in order to reinforce progress towards our target, the governing council today decided to raise the three key ecb interest rates by 25 basis points. the rate increase today reflects our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. the september ecb staff macroeconomic projections for the euro area see average inflation at 5. 6 per cent in 2023, 3. 2 per cent in 2024 and 2. 1 per cent in 2025. this is an upward revision for 2023 and 2024 and a downward revision for 2025. the upward revision for 2023 and 2024 mainly reflects a higher path for energy prices. underlying price pressures remain high, even though most indicators have started to ease. ecb staff have slightly revised down the projected path for inflation excluding energy and food, to an average of 5. 1 per cent in 2023, 2. 9 per cent in 2024 and 2. 2 per cent in 2025. our past interest rate increases continue to be transmitted forcefully. financing conditions have tightened further and are increasingly dampening demand, which is an important factor in bringing inflation back to target. with the increasing impact of our tightening on domestic demand and the weakening international trade environment, ecb staff have lowered their economic growth projections significantly. they now expect the euro area economy to expand by 0. 7 per cent in 2023, 1. 0 per cent in 2024 and 1. 5 per cent in 2025. based on our current assessment, we consider that the key ecb interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target. our future decisions will ensure that the key ecb interest rates will be set at sufficiently restrictive levels for as long as necessary. we will continue to follow a data - dependent approach to determining the appropriate level and