Tag Archives: Christine Lagarde

Business

Inflation euro zone December 2022 drops as energy costs ease

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Inflation in Europe has been impacted by higher energy prices and supply shortages. Analysts question how far central banks will go to bring inflation under control.

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Inflation in the euro zone dropped for a second consecutive month in December, but analysts do not expect it to spark a change in tone from the European Central Bank.

Headline inflation, which includes food and energy costs, came in at 9.2% year-on-year in December, according to preliminary data Friday from the European statistics agency, Eurostat. It follows November’s headline inflation rate of 10.1%, which represented the first slight contraction in prices since June 2021.

The euro area economy has come under immense pressure in the wake of Russia’s invasion of Ukraine in February 2022, with energy and food costs soaring last year. In an effort to battle rising prices, the European Central Bank increased interest rates four times in 2022 and said it is likely to continue doing so this year. The bank’s main rate currently sits at 2%.

Despite further signs that inflation is easing, analysts say it is too early to celebrate and do not expect a pivot from the region’s central bank.

Interest rates will “get to 3(%) and probably have to hold that all through the year even as the recession becomes more and more evident,” Hetal Mehta from Legal & General Investment Management told CNBC’s “Street Signs” Thursday.

It comes after ECB President Christine Lagarde struck a particularly hawkish tone in December: “We’re not pivoting, we’re not wavering, we are showing determination.” She added that the bank has “more ground to cover.”

The ECB cannot and will not base its policy decisions on highly volatile energy prices.

Carsten Brzeski

global head of macro, ING Germany

Speaking earlier this week, ECB Governing Council member and French Central Bank Governor Francois Villeroy de Galhau said interest rates might peak by this summer.

The ECB also said in December that it will start reducing its balance sheet in March at a pace of 15 billion euros ($15.8 billion) per month until the end of the second quarter. This step is also expected to address some of the region’s inflationary pressures.

At the time, the central bank forecast an average inflation rate of 8.4% for 2022, 6.3% for 2023 and 3.4% for 2024. The bank’s mandate is to work toward a headline inflation figure of 2%.

Earlier this week, data out of Germany showed inflation dropping from 10% in November to 8.6% in December.

Carsten Brzeski, global head of macro at ING Germany, said these numbers “are not a relief, yet, only a reminder that euro zone inflation is still mainly an energy price phenomenon.”

Energy costs have dropped in Europe in recent months. Natural gas prices, for instance, traded at around 72.42 euros per megawatt hour on Friday — sharply lower than their peak of 349.90 euros per megawatt hour in August.

Among inflation components, energy continued to represent the biggest driver in December, but came off from previous levels. Energy costs dropped from 34.9% in November to an estimated 25.7% in December, according to the latest figures.

“The ECB cannot and will not base its policy decisions on highly volatile energy prices. Instead, the central bank will, in our view, hike interest rates at the next two meetings by a total of 100 basis points,” Brzeski said in a note.

Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics, also said in a note this week that he sees “little relief” in the inflation data, “which will keep the ECB on alert at the start of the year.” He expects two rate hikes of 50 basis points in the first quarter.

In terms of national breakdown, the Baltic nations once again registered the highest jumps in inflation, with a rate of about 20%.

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Business

Euro zone inflation hits 10.7% in October

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Inflation in the euro zone remains extremely high. Protestors in Italy used empty shopping trolleys to demonstrate the cost-of-living crisis.

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Euro zone inflation rose above the 10% level in the month of October, highlighting the severity of the cost-of-living crisis in the region and adding more pressure on the European Central Bank.

Preliminary data on Monday from Europe’s statistics office showed headline inflation came in at an annual 10.7% last month. This represents the highest ever monthly reading since the euro zone’s formation. The 19-member bloc has faced higher prices, particularly on energy and food, for the past 12 months. But the increases have been accentuated by Russia’s invasion of Ukraine in late February.

This proved to be the case once again, with energy costs expected to have had the highest annual rise in October, at 41.9% from 40.7% in September. Food, alcohol and tobacco prices also rose in the same period, jumping 13.1% from 11.8% in the previous month.

“Inflation surged again in October and are a proper Halloween nightmare for the ECB,” analysts at Pantheon Macroeconomics, said in an email.

Salomon Fiedler, an economist at Berenberg, said the “continuing surge in consumer prices and still-resilient domestic demand in the summer indicate a risk that the European Central Bank may hike rates by 75 basis points in December, rather than the 50 basis points we currently expect.”

Italy’s inflation above 12%

Monday’s data comes after individual countries reported flash estimates last week. In Italy, headline inflation came in above analysts’ expectations at 12.8% year-on-year. Germany also said inflation jumped to 11.6% and in France the number reached 7.1%. The different values reflect measures taken by national governments, as well as the level of dependency that there nations have, or had, on Russian hydrocarbons.

There are, however, euro nations where inflation rose by more than 20%. This includes Estonia, Latvia and Lithuania.

The European Central Bank — whose primary target is to control inflation — on Thursday confirmed further rate hikes in the coming months in an attempt to bring prices down. It said in a statement that it had made “substantial progress” in normalizing rates in the region, but it “expects to raise interest rates further, to ensure the timely return of inflation to its 2% medium-term inflation target.”

The ECB decided to raise rates by 75 basis points for a second consecutive time last week.

Speaking at a subsequent press conference, ECB President Christine Lagarde said the likelihood of a recession in the euro zone had intensified.

Growth figures released Monday showed a GDP (gross domestic product) figure of 0.2% for the euro area in October. This is after the region grew at a rate of 0.8% in the second quarter. Only Belgium, Latvia and Austria registered GDP rates below zero.

So far, the 19-member bloc has dodged a recession but an economic slowdown is evident. Several economists predict there will be a contraction in GDP during the current quarter.

Andrew Kenningham, chief Europe economist at Capital Economics, said “the increase in euro zone GDP in the third quarter does not alter our view that the euro zone is on the cusp of a recession.”

“But with inflation having jumped to well over 10%, the ECB will prioritise price stability and press on with rate hikes regardless,” he added.

The euro traded below parity against the U.S. dollar in early European trading hours Monday and ahead of the new data releases, and barely moved after the new figures. The euro has been weaker against the greenback and that’s also something the ECB has been concerned about with concerns that this will push up inflation in the euro zone even further.

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75 bps hike expected but TLTROs and QT on the table

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Christine Lagarde, president of the European Central Bank, is expected to announce another 75 basis points hike.

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While the European Central Bank is largely expected to announce another rate hike Thursday, market players are seemingly more concentrated on two other policy tools as the region edges toward a recession.

The central bank has been contemplating inflation being at record highs but an economy that is slowing, with many economists predicting a recession before the end of the year. If the ECB takes a very aggressive stance in increasing rates to deal with inflation, there are risks that it tips the economy into further trouble.

Amid this context, the ECB is widely seen raising rates by 75 basis points later this week. This would be the second consecutive jumbo hike and the third increase this year.

“The ECB will likely raise its three policy rates by 75 basis points and suggest that it will go further at its next few policy meetings without providing a clear guidance on the size and number of steps to come,” Holger Schmieding, chief economist at Berenberg, said in a note Tuesday.

Given the inflationary pressures — the September inflation rate came in at 10% — analysts are pricing in at least another 50 basis point hike in December. The bank’s main rate is currently at 0.75%.

“A growing consensus seems to be in favour of having the deposit rate at 2% by the end of the year, implying a 50 basis point hike in December, with a reassessment of the economic and inflation outlook in early 2023,” Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, said in a note Friday.

Two big questions

Rates aside, there are two questions on the minds of market players that need answering: When will the ECB start unwinding its balance sheet, in a process known as quantitative tightening, and what will happen to the lending conditions for banks in the near future. The ECB has undertaken years of quantitative easing, where it buys assets like government bonds to simulate demand, following the euro crisis of 2011 and the Covid-19 outbreak in 2020.

“When it comes to QT, boring is beautiful,” Ducrozet said, adding that he expects the process to start in the second quarter of 2023. QT is expected “to be predictable, gradual, and passive, starting with the end of reinvestments under the Asset Purchase Programme (APP) but not actively selling bonds any time soon,” he said.

Camille De Courcel, head of European rates strategy at BNP Paribas, said in a note Monday that the central bank might wait until the December meeting to provide details on QT but that it is likely to start reducing its balance sheet by about 28 billion euros on average per month when it does happen.

But perhaps the biggest uncertainty at this stage is whether lending conditions will change for European banks.

“We think Thursday [the ECB] will unveil a decision on the TLTRO, either its remuneration, or its cost. We think the new measure will only come into effect, in December,” De Courcel said.

The targeted longer-term refinancing operations, or TLTROs, is a tool that provides European banks with attractive borrowing conditions — hopefully giving these institutions more incentives to lend to the real economy.

Because the ECB has been increasing rates faster than the central bank initially expected, European lenders are benefiting from the attractive loan rates via TLTROs while also making more money from the higher interest rates.

“The optics are bad against the backdrop of a historical shock to households’ income, and political pressure cannot be ignored,” Ducrozet said.

The euro traded marginally higher against the U.S. dollar on Wednesday at $0.997. The weakness of the common currency has been a concern for the central bank though it repeatedly states that it does not target the exchange rate.

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Business

Euro zone inflation 8.6% in June, ECB to hike rates for first time in 11 years

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The ECB has announced it will be hiking rates in July and September to counter record inflation.

Daniel Roland | Afp | Getty Images

Euro zone inflation reached a new record high in June just ahead of the European Central Bank’s first rate increase in 11 years.

Headline inflation came in at 8.6% (year-on-year) for last month, according to preliminary figures from Europe’s statistics office Eurostat released Friday. That beat a prediction of 8.4% in a Reuters poll of economists. The rate had reached 8.1% in May which means the cost of living is continuing to surge across the euro zone nations.

Germany surprised many earlier this week when it reported a drop of 0.5 percentage points in inflation month-on-month. Experts said this was due to new government subsidies to ease the impact of higher energy prices and it was not yet the end of surging inflation rates.

But both France and Spain experienced new inflation records in June with the latter surpassing the 10% threshold for the first time since 1985, according to Reuters.

ECB action

The ECB, which has vowed to tackle the surge in prices, is due to meet in late July to announce it’s increasing rates. The central bank has said it will hike again in September, meaning its main interest rate could return to positive territory this year — the ECB has had negative rates since 2014.

Speaking earlier this week, ECB President Christine Lagarde struck a hawkish tone.

“If the inflation outlook does not improve, we will have sufficient information to move faster,” Lagarde told an audience in Sintra, Portugal, about the period after that September hike.

However, there are growing questions about the future of monetary policy in the euro zone amid fears of a recession in the coming months. If the central bank were to move quickly in hiking rates, this could hamper economic growth even further at a time when a slowdown is already underway.

We are still expecting positive growth.

Christine Lagarde

ECB President

Recent business activity data suggests that the euro area is already losing steam. The overall question is whether the euro zone will manage to escape a recession this year, or if that will come in 2023.

Berenberg economists forecast an recession in the euro zone in 2023 with a GDP (gross domestic product) contraction of 0.8%.

However, further economic pressures from Russia’s invasion of Ukraine — most notably over energy and food security — could tip the region into a more proacted slowdown earlier than expected.

So far, European officials have avoided talk of a recession.

“We are still expecting positive growth rates due to the domestic buffers against the loss of growth momentum,” Lagarde said earlier this week. The ECB forecast in June a GDP rate of 2.8% for the region this year. New forecasts will be published in September.

However, policymakers in Frankfurt are aware that the economic slowdown is a major risk they need to monitor.

Philip Lane, the bank’s chief economist, said it needs to remain vigilant over the coming months.

“With the uncertainty, we have to manage the two risks,” Lane, who is also a member of the bank’s Governing Council, told CNBC’s Annette Weisbach Tuesday at the ECB’s Sintra Forum.

“On the one side, that could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure,” he added.

Speaking in a flash research note after the data release Friday, Andrew Kenningham, the chief Europe economist at Capital Economics, said that the 8.6% figure is “probably not enough to bring a 50bp rate hike (rather than 25bp) back into play for July.”

“As policymakers are increasingly uncomfortable with their negative-interest rate policy we expect to see bigger rate hikes from September, with the deposit rate rising to +0.75% by year-end,” he said.

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Business

ECB’s Lane sees double-sided risk of spiraling inflation and economic slowdown

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Philip Lane, chief economist of the European Central Bank.

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European Central Bank Chief Economist Philip Lane said the Frankfurt institution will have to remain vigilant over the coming months with the prospect of inflation spiraling ever higher alongside the risk of a consumer-led slowdown the region.

“With the uncertainty, we have to manage the two risks,” Lane, who is also a member of the bank’s Governing Council, told CNBC’s Annette Weisbach Tuesday at the ECB’s Sintra Forum in Portugal.

“On the one side, that could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure,” he added.

“So it’s very much having a clear vision for the next couple of meetings, having an orientation to move away from the very low rates we’ve had for quite a few years, but also fully respecting the importance of being data dependent. And to retain the optionality to respond to what we see, in the coming months.”

All eyes are on the ECB with a critical meeting next month. The central bank has said it will be raising interest rates for the first time in 11 years, but investors are more interested in understanding what the ECB is doing to address fragmentation risks in the region.

The euro zone’s central bank held an emergency meeting earlier this month as borrowing costs surged for the so-called peripheral European nations. The ECB said it would be developing a new tool to address these risks — however, markets were left wondering when the tool would be implemented and how far it would go.

These conversations come at a time when there’s widespread concern about the euro zone economy. Inflation is high and the growth outlook is deteriorating.

“Can you really hike interest rates into a recession even if inflation is high? That would be unusual,” Erik Nielsen, the global chief economist at UniCredit, told CNBC Tuesday.

The ECB confirmed in early June its intention to hike rates next month and then again after the summer. This would likely bring the ECB’s deposit rate back out of negative territory and mark a massive moment for the central bank, which has kept rates below zero since 2014.

However, there are questions on whether Lagarde will follow through with multiple rate hikes with the region’s growth outlook darkening.

The ECB in June forecast a GDP rate of 2.8% for the euro zone this year, but economists are starting to talk about the prospect of a recession toward year-end off the back of Russia’s invasion of Ukraine and the impact that’s having on the global economy.

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ECB Lagarde plays down recession risks at Sintra Forum

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European Central Bank President Christine Lagarde said the central bank can raise rates faster, if needed.

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European Central Bank President Christine Lagarde on Tuesday played down concerns about a recession in the euro zone, also saying her team is ready to raise rates at a faster pace — if needed — if inflation continues to shoot higher.

Central bank officials are gathered in Portugal for their annual conference, with the focus on surging consumer prices. The euro zone is expected to see a headline inflation rate of 6.8% this year — well above the ECB’s target of 2%.

This comes at a time when economists are assessing whether or not the euro zone will escape a recession this year. The region has seen growth levels deteriorate amid an energy crisis, sanctions on Russia and food insecurity — just to name a few factors.

“We have markedly revised down our forecasts for growth in the next two years. But we are still expecting positive growth rates due to the domestic buffers against the loss of growth momentum,” Lagarde said Tuesday at the Sintra Forum.

The European Central Bank held an emergency meeting earlier this month to announce a new tool aimed at addressing fragmentation risks in the euro zone. However, market players were left with questions about the timing and magnitude of the mechanism.

Investors are concerned about high inflation and have been tracking closely what the ECB is saying and doing. Investors are also wary of the high levels of debt in Europe, in particular in Italy, and how a return to tighter monetary policy could become a financial constraint for these economies.

“If the inflation outlook does not improve, we will have sufficient information to move faster. This commitment is, however, data dependent,” Lagarde added Tuesday.

Rising or cutting rates?

Speaking to CNBC, Erik Nielsen, global chief economist at UniCredit, said he does not expect this year’s forum to address disparities between public debt levels, but to focus more on the future of monetary policy.

“Can you really hike interest rates into a recession even if inflation is high? That would be unusual,” he said.

The ECB confirmed in early June its intention to hike rates next month and then again after the summer. This would likely bring the ECB’s deposit rate back out of negative territory and mark a massive moment for the central bank, which has kept rates below zero since 2014.

However, there are questions on whether Lagarde will follow through with multiple rate hikes with the region’s growth outlook darkening. The ECB in June forecast a GDP rate of 2.8% for the euro zone this year, but economists are starting to talk about the prospect of a recession toward year-end off the back of Russia’s invasion of Ukraine and the impact that’s having on the global economy.

According to Nielsen, the Federal Reserve in the United States is in the same position.

“There is a very high chance the Fed ends up cutting rate towards, sort of, the end of next year or something, and this is the recession story again,” he said.

“They can’t implement what they are saying, they will do the next one and maybe one more hike but then it is going to be really difficult for them, both in the U.S. a little bit later, and in Europe,” he added.

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Business

European Central Bank last-minute meeting to look at market conditions

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The European Central Bank announced an unscheduled monetary policy meeting for Wednesday, at a time when bond yields are surging for many governments across the euro zone.

“They will have an ad hoc meeting to discuss current market conditions,” a spokesperson for the central bank told CNBC.

Borrowing costs for many governments have risen sharply in recent days. In fact, a measure known as Europe’s fear gauge — the difference between Italian and German bond yields which is widely watched by investors — widened the most since early 2020 earlier on Wednesday.

The yield on the 10-year Italian government bond also passed the 4% mark earlier this week.

The moves in the bond market, which highlights nervousness among investors, were linked to concerns that the central bank will be tightening monetary policy more aggressively than previously expected.

At the same time, the ECB failed last week to provide any details about possible measures to support highly indebted euro zone nations, which further fueled concerns among the investment community.

However, in the wake of Wednesday’s announcement, bond yields have come down and the euro moved higher against the U.S. dollar. The euro traded 0.7% up at $1.04 ahead of the market open in Europe.

Shares of Italian banks also rallied on the back of the announcement. Intesa Sanpaolo and Banco Bpm both surged 5% in early European trading hours.

The market reaction so far suggests that some market players are expecting the ECB to address concerns over financial fragmentation and indeed provide some clarity about what sort of measures it might take to support highly indebted nations.

The ECB’s decision to meet Wednesday also comes just hours ahead of a rate decision by the U.S. Federal Reserve. Market expectations point to a 75-basis-point rate hike, the biggest increase since 1994.

Stepping up when needed?

Wednesday’s announcement also followed a speech by one of the members of the central bank that aimed to address some of the recent market skittishness over financial fragmentation.

Isabel Schnabel, a member of the ECB’s executive board, said in Paris Tuesday: “Our commitment to the euro is our anti-fragmentation tool. This commitment has no limits. And our track record of stepping in when needed backs up this commitment.”

One of the most defining moments in the ECB’s history took place in 2012 when former President Mario Draghi said the central bank would do “whatever it takes” to safeguard the common currency. The ECB was also seen by many as stepping up significantly and promptly in the wake of the coronavirus pandemic.

Financial fragmentation is a risk for the euro zone. Although the 19 members of the euro area have different fiscal capacities, they share the same currency. As such, instability in one nation can spillover to other euro capitals.

“We will react to new emergencies with existing and potentially new tools. These tools might again look different, with different conditions, duration and safeguards to remain firmly within our mandate. But there can be no doubt that, if and when needed, we can and will design and deploy new instruments to secure monetary policy transmission and hence our primary mandate of price stability,” Schnabel said Tuesday.

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Business

European markets open to close, data, ECB decision

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LONDON — European stocks are expected to open lower ahead of the latest interest rate decision from the European Central Bank on Thursday.

The U.K.’s FTSE index is seen opening 32 points lower at 7,554, Germany’s DAX down 75 points at 14,360, France’s CAC 40 down 35 points at 6,403, and Italy’s FTSE MIB 156 points lower at 24,062, according to data from IG.

European markets will be focused on the forthcoming monetary policy meeting and decision from the ECB on Thursday. The central bank is expected to confirm its intention to raise interest rates next month. The move comes after inflation for the 19-member euro area hit another record high in May.

Markets will be waiting for ECB President Christine Lagarde’s press conference following the meeting to gauge how aggressively the bank could act.

Asia-Pacific stocks were mixed in Thursday trade, with investors watching for market reaction to China’s trade data for May, which performed above expectations. Meanwhile, U.S. stock futures were flat in overnight trading Wednesday after the major averages ended the regular session lower and U.S. Treasury yields rose.

Investors on Wednesday continued to look for signs of slowing economic growth ahead of May’s consumer price index reading, which is slated for Friday. The data is expected to come in slightly below April’s numbers and could indicate that inflation has reached its peak.

There are no major earnings or data releases on Thursday.

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Business

European Central Bank poised to signal July rate hike as inflation jumps

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Christine Lagarde, president of the European Central Bank, seen during a panel session at the World Economic Forum in Davos, Switzerland, on Wednesday, May 25, 2022.

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The European Central Bank on Thursday is expected to confirm its intention to raise interest rates next month, as rate setters meet in Amsterdam for their first policy meeting outside of Frankfurt since the onset of the coronavirus pandemic.

While inflation for the 19-member euro area hit another record high in May, a rate hike would only come in July as the ECB first needs to formally end its net asset purchases, according to its forward guidance.

The key question is how aggressive the shift will be over the coming months — some analysts have moved their estimates for a larger hike in September at the latest.

“A handful of Governing Council members are already open to a 50bp hike,” said Mark Wall, a chief economist with Deutsche Bank, in a research note.

“We believe the ECB is continuing to underestimate inflation and we expect support for a 50bp hike will increase as the summer progresses.”

The ECB will also publish new staff projections for growth and inflation this week — and market participants are likely to closely monitor the 2024 inflation print as this constitutes the ECB’s medium-term price target.

The ECB is also expected to downgrade its growth forecasts and upwardly revise its inflation projections, with the 2024 inflation number probably hitting 2%, the medium-term target of the ECB.

Persistently high inflation is the top concern for policymakers on the ECB’s Governing Council.

“Inflation is not only too high, but also too broad,” Francois Villeroy de Galhau, France’s central bank governor, said last week at a conference in Paris. “This requires a normalization of monetary policy — I say normalization and not tightening.”

While inflation, and the fight against it, is of course the core mandate of the ECB, the topic of fragmentation risk will most likely be addressed this week as well.

Bond markets have already reacted to the end of the asset purchases and reassessed the different risks associated with different euro zone countries.

As a result, the spread between German and Italian bonds has been widening. The 10-year spread was above 200 basis points on Monday, compared with less than 140 basis points at the start of the year

“Fragmentation makes life complicated for the ECB. This is not to say that these considerations will overrule whatever the inflation picture dictates in terms of policy tightening,” Dirk Schumacher, an ECB watcher with Natixis, said in a research note.

“But it is nevertheless an important implicit argument for gradualism,” he added.

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Euro zone inflation hits yet another record high as food and energy prices soar

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A market in the city center of Bonn, Germany on Feb 5, 2022.

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Prices in the euro zone continued their march higher in May, hitting a record high for the seventh month in a row.

Inflation came in at 8.1% for the month, according to preliminary figures from Europe’s statistics office Tuesday, up from April’s record high of 7.4% and higher than expectations of 7.8%.

It comes after inflation prints from several major European economies surprised to the upside in recent days. German inflation (harmonized to be comparable with other EU nations) came in at an annual 8.7% in May, preliminary figures showed on Monday — significantly outstripping analyst expectations of 8% and marking a sharp incline from the 7.8% seen in April.

French inflation also surpassed expectations in May to a notch record 5.8%, up from 5.4% in April, while harmonized Spanish consumer prices jumped by an annual 8.5% in May, exceeding expectations of 8.1%.

Across the euro zone, the record annual consumer price increase was driven by soaring energy costs, which hit 39.2% (up from 37.5% in April) and a 7.5% increase in food, alcohol and tobacco prices (up from 6.3%).

However, even without energy and food prices, inflation increased from 3.5% to 3.8%, Eurostat added.

Rising prices have been exacerbated over recent months by the war in Ukraine, particularly food and energy costs, as exports are blocked and countries across the West scramble to reduce their reliance on Russian gas.

EU leaders agreed late Monday to ban 90% of Russian crude oil by the end of the year, sending prices higher. Charles Michel, president of the European Council, said the move would immediately hit 75% of Russian oil imports.

Inflation — which remains persistently high not just in Europe, but also in the U.K., U.S. and beyond — is causing a headaches for central banks, which are also balancing the risk of recession.

Earlier this month, European Central Bank President Christine Lagarde said she was anticipating a rate rise at the central bank’s meeting in July.

“Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter,” she wrote in a blog post. “If the euro area economy were overheating as a result of a positive demand shock, it would make sense for policy rates to be raised sequentially above the neutral rate.”

The ECB’s governing council is due to meet on June 9, and then on July 21.

Goldman Sachs Chief European Economist Jari Stehn told CNBC on Tuesday that the Wall Street bank expects 25 basis point hikes to the ECB’s deposit rate at each of its upcoming meetings over the next year, taking the rate from -0.5% currently to 1.5% in June 2023. Goldman expects euro area headline inflation to peak at 9% in September.

“But remember that a lot of this is driven by energy prices, a lot of it is driven by things related to global bottlenecks, and the core inflation numbers, if you strip out food and energy prices, are running at about 3.5%. Wage growth is running a bit above 2%,” Stehn said prior to Tuesday’s data release.

“So the underlying inflation pressures in the euro area have certainly firmed, which is why we do think they will normalize pretty rapidly, but they are not running at the same kind of levels that we are seeing in the U.S. and the U.K., where core inflation is running at about 6% and where the central banks — or the Fed in particular — needs to take a more decisive approach to tightening policy than the ECB.”

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