Last year, inflation in Europe was largely a function of the war and its impact on energy and food prices. That meant runaway price growth was mostly beyond the ECB’s capacity to micromanage.

The situation is different in 2023. European natural gas prices are “returning to manageable levels,” as the IEA’s Director of Energy Markets and Security put it, but inflation has broadened well beyond energy, testing the mettle of monetary policymakers who can no longer claim the problem resides outside their sphere of influence.

Inflation readings out of France and Spain on Tuesday were disconcerting. Harmonized price growth in France was 7.2% this month versus the same period a year ago, above estimates, and the YoY pace rose a second month in Spain, where a dramatic decline from last year’s double-digit headline readings is now going into reverse.

Insee cited an “acceleration in the prices of food and services” for this month’s provisional increase. The release noted that the annual rate of price growth for manufactured goods was mostly flat, while energy prices are “slowing down.” How long those disinflationary tailwinds will last is up for debate.

“While in other European countries, the contribution of energy to inflation is becoming negative, energy continues to make a significant positive contribution to inflation in France,” ING’s Charlotte de Montpellier said Tuesday, noting that although “government measures brought down inflation in France by almost three percentage points in 2022, French households are finally facing sharp increases in their energy bills, well behind their European neighbors.” Apparently, energy inflation will be an issue for the remainder of the year in France.

If energy prices are expected to contribute positively to inflation while food prices are rising and services inflation is too, it’s not obvious where the disinflation will come from.

In Spain, the picture doesn’t look much different. Food prices and stubbornly elevated core inflation are cause for concern, and some say higher input costs haven’t yet been passed along fully to consumers, suggesting significant pipeline pressure that could keep services inflation high going forward. Core inflation in Spain was 7.7% this month. It was the 22nd straight monthly increase.

The preliminary read on bloc-wide inflation is due later this week. Note that traders are now looking into 2024 vis-à-vis the duration of Christine Lagarde’s tightening efforts.

4% would be the highest policy rate on record at the ECB, and it’s worth noting that the May meeting isn’t fully priced yet for 50bps. The ECB suggested at its February gathering that policymakers might pause after a guaranteed half-point move in March, but it’s obvious now that rate hikes will continue indefinitely.

On Tuesday, during an interview with Reuters, ECB Chief Economist Philip Lane suggested “higher for longer” is the mantra. “It could be quite a long-lasting period,” he said, queried on how long rates will remain in restrictive territory once terminal is achieved. “A fair number of quarters.”

Lane also suggested the ECB “has started to win the inflation fight,” as Reuters put it, in their headline. “There’s significant evidence that monetary policy is kicking in,” Lane mused. “For energy, food and goods, there [are] a lot of forward-looking indicators saying that inflation pressures in all of those categories should come down quite a bit.”

Some of that’s true. I guess. But frankly, these soundbites are all punchlines at this point. Nobody knows anything and there’s no reason to take anyone seriously.