In June inflation once again approached the ECB's target level. However, the new data is good news for the central bank only at first glance. The stagnation of the core rate and, above all, the continued very high inflation in services, show that a sustainable inflation rate of 2% is further away than it seems. As long as inflation for service providers remains above 4%, inflation will stabilise between 2% and 3%. The monthly increase of service inflation of 0.6% shows that price pressure in this area is not easing.

The ECB hopes for and expects a decline in wage growth in the second half of the year. This would slow down inflation in labour-intensive services. However, it is far from certain that this forecast will actually materialise. The power of employees and trade unions has recently increased due to demographic change. The desire to at least compensate for the high actual wage losses of recent years is pronounced.

Due to statistical base effects, inflation is likely to fall in the coming months and could even drop to the European Central Bank's target value of 2%. More important for the management of monetary policy, however, is the underlying price pressure, which has a strong influence on inflation trends in the medium term, as well as the central bank's projections, which most recently went in the wrong direction in June.

When looking at the current inflation data, it must be clear to the ECB that it must be cautious with interest rate cuts. Under no circumstances should it ease too much before it is clear that inflation will fall to 2% on a sustained basis. The June data does not strengthen confidence. An interest rate cut in September in order to reduce the degree of restrictiveness of monetary policy is still within the realm of possibility. However, whether a further rate cut will follow in December, as expected by the financial markets, has now become a little more questionable.