Interest rates can still be lowered by the European Central Bank at will.

The European Central Bank (ECB) is set to extend its interest rate pause on September 11, as the development of services inflation, which has recently eased as predicted, remains a key area of focus.

Amidst this backdrop, ECB board member Isabel Schnabel expresses concerns about the potential inflationary impact of the trade conflict with the US. She believes that the trade dispute could increase inflation, even without retaliatory tariffs, due to higher input prices globally potentially leading to inflationary pressure in the eurozone.

However, ECB President Christine Lagarde does not expect major adjustments to the projections due to tariffs. On the other hand, Finnish central bank governor Olli Rehn believes the inflationary effects of tariffs to be negligible.

The inflation rate in August stood at 2.1%, according to a flash estimate by Eurostat, marking an unexpected rise from the previous month's rate of 2.0%. However, the core rate of inflation remained unchanged at 2.3%.

The ECB is more concerned about potential medium-term low inflation than high inflation. Many Council members still see the risk of inflation being too low for an extended period.

The deposit rate, relevant for monetary policy, is likely to remain at 2.0% on September 11. A 25 basis point interest rate cut by December remains on the table, with the further developments in the trade conflict with the US likely to influence this decision.

On September 11, the ECB will publish updated projections. The Council is divided in its opinions about the impact of US tariffs on eurozone inflation, with some members, including Christine Lagarde, expressing concerns about the potential long-term effects of trade conflicts on inflation.

Despite these concerns, the ECB's focus remains on maintaining price stability and supporting economic growth in the eurozone. The bank will continue to closely monitor the situation and adjust its policies as necessary.