- Inflation to accelerate in the coming months
EBC’s Governing Council member Madis Muller expects inflation to accelerate in the coming months due to the US-Iran war. On Friday, Muller said in a blog post that a rate hike is now increasingly likely unless the conflict in the Middle East ends before the next meeting and energy prices fall markedly.
He noted that the ECB could afford holding interest rates unchanged last week “partly because long-term interest rates have already risen in financial markets and contributed to some tightening of financing conditions, which is necessary to counter price pressures”. But he warned that “this so-called advance effect loses its power if central bank’s interest rates remain unchanged for a longer period of time”.
The usual ECB sources, that generally signal policy changes after the official ECB decision, said on Thursday that a June hike was “very likely” and that policymakers were in broad agreement. Moreover, several Governors thought that at least two hikes will be needed unless the war ended and Brent quickly dropped.
The market is pricing in a 77% probability of a rate hike in June with a total of 70 bps of tightening by year-end.
