Central banks should not fight only against the current upward spiral of prices but with the expectation that prices will continue to rise in the medium and long term. And the ECB is far from getting those expectations closer to the 2% price stability target in the future. Consumers in the euro zone expect long-term inflation of 3%, higher than the 2.8% they estimated in June, according to the survey carried out each month by the ECB among some 14,000 adults in Belgium, Germany, Spain, France, Italy and Holland.
The CPI for August in the euro zone has not given up and confirms the continuity in the increase in prices, which have risen 9.1% year-on-year, from 8.9% in July. The rise gives arguments to the hardest wing of the ECB, which calls for a rate hike of 75 basis points at the meeting on September 8.
The possibility of an increase in rates of that amount – and not half a point, as in July – gains weight and there are already several analysis firms that point to that thesis. It is the forecast released by Bank of America this Friday and the one shared by other experts such as Goldman Sachs, Citi or Morgan Stanley.
“The number of ECB advisers favoring a stronger response has grown,” JP Morgan economist Greg Fuzesi said in a note to clients. Wednesday’s inflation data “will have given them more encouragement. While it is difficult to gauge the relative size of the various groups of supporters within the Governing Council after the summer break, we suspect there are now more cards on the table for a 75 basis point increase next week. Bloomberg.
Minutes after the inflation data, Bundesbank President Joachim Nagel called for a “strong rate hike in September” and added that “more rate hikes can be expected” after. His Austrian colleague Robert Holzmann also said on Wednesday that there was “no reason to be lenient”.
Goldman Sachs economist Sven Jari Stehn noted that activity data “has held up a little better than expected” and said the eurozone could see only a “moderate slowdown,” according to Bloomberg. This expert expects inflation to accelerate further as temporary support measures in Germany expire and high energy costs continue to weigh on retail prices. “The debate is highly complex, but the mix of recent messages, coupled with August’s surprise to the upside in core inflation, means that a move larger than July’s has now become marginally more likely,” the economists wrote in their report. .
However, investment banks are not clear and all recognize that these forecasts are subject to uncertainty. Bank of America said its new rate expectations are based on “a very tight decision.”
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