- We know inflation is to be above target for some quarters
- We might need another hike
- That doesn’t necessarily mean a move in July
- We’re going to have some second-round effects
ECB’s Wunsch said that policymakers know that inflation in the Eurozone is going to remain above the 2% target for more quarters and added that further monetary tightening may still be required.
He said that the recent energy shock continues to filter through the broader economy and price pressures could prove more persistent. He stopped short of endorsing immediate action at the ECB’s July meeting though suggesting that a move after the summer remains the preferred option.
Markets are currently assigning relatively low odds for a July hike (32%), with expectations leaning more toward a possible move in September (64%), especially after the recent selloff in oil prices to pre-war levels. Moreover, today’s inflation numbers from France, Germany and Italy reinforce the case for holding off on a July hike and wait for more data over the summer to make a better decision.
