Some measures of underlying inflation – which relates more to domestic price pressures – have ticked up moderately in recent months. For example, HICP inflation excluding food and energy, which in August was 1.3% for the second consecutive month, has surpassed the 1% level where it had been languishing for around three years.
Nevertheless, underlying inflation pressures are yet to show convincing signs of a sustained upward trend. An important element keeping underlying price pressures subdued is muted wage dynamics, which are shaped by many factors. Besides weak productivity developments, the significant degree of remaining labour market slack acts to contain wage growth. When assessing slack, it is also worth looking at alternative measures of unemployment.