ECB Officials See Inflation Staying Above Target Into First Half of 2027 Despite Pricing in Three 25-Basis-Point Rate Hikes
ECB officials project headline inflation will remain above target through the first half of 2027, despite the staff baseline embedding almost three 25-basis-point interest rate hikes.
All committee members view the inflation outlook risks as skewed to the upside, particularly if energy prices do not fall as futures curves imply. Officials expect firms and workers to react more quickly to price rises than during the previous energy shock, while tighter financial conditions since the start of the war have provided limited dampening so far. A rise in long-term interest rates and tighter bank lending standards are expected to lower credit demand, weigh on investment, and weaken economic momentum.
From the sources (10 posts)
@financialjuiceECB Officials saw further indirect effects in the pipeline in June
@financialjuiceECB Accounts: All members viewed the risks surrounding the inflation outlook as being to the upside relative to the staff baseline projections
@firstsquawkECB ACOUNTS: HEADLINE INFLATION WAS SET TO RISE FURTHER OVER THE SUMMER AND REMAIN WELL ABOVE TARGET INTO THE FIRST HALF OF 2027, DESPITE ALMOST THREE 25 BASIS POINT INTEREST RATE HIKES BEING EMBEDDED IN THE PROJECTIONS
@firstsquawkECB ACOUNTS: IF ENERGY PRICES DID NOT DECLINE AS IMPLIED BY THE FUTURES CURVES, ABOVE-TARGET INFLATION WAS LIKELY TO PROVE CONSIDERABLY MORE PERSISTENT
@financialjuiceECB Accounts: Effects of the current shock would be more short-lived than those of the previous episode.
@firstsquawkECB ACOUNTS: MORE ATTENTION WAS LIKELY TO BE PAID TO PRICE RISES NOW THAN AT THE TIME OF THE PREVIOUS ENERGY SHOCK, AND THIS COULD MEAN THAT FIRMS AND WORKERS MIGHT REACT MORE QUICKLY ON THIS OCCASION.
@financialjuiceECB Accounts: More attention was likely to be paid to price rises now than at the time of the previous energy shock, and this could mean that firms and workers might react more quickly on this occasion.
@financialjuiceECB Accounts: The dampening effect from the tighter financial conditions since the outbreak of the war had been limited so far
@firstsquawkECB ACOUNTS: THE DAMPENING EFFECT FROM THE TIGHTER FINANCIAL CONDITIONS SINCE THE OUTBREAK OF THE WAR HAD BEEN LIMITED SO FAR|| IT WAS SUGGESTED THAT THE RECENT RISE IN LONG-TERM INTEREST RATES AND TIGHTENING OF BANK LENDING STANDARDS WOUL
@financialjuiceECB Accounts: It was suggested that the recent rise in long-term interest rates and tightening of bank lending standards would lower credit demand, weigh on investment, and weaken economic momentum