“For an extended period.”
If you were curious as to how long Europeans will have to suffer another bout of elevated inflation, that’s the answer, according to the people who set the price of money over there.
On Thursday, those people raised that price for the second time in four months citing Donald Trump’s war of choice in the Mideast. The conflict, the ECB’s Governing Council said, “continues to generate inflation pressures.” The new staff projections reflect upward revisions to the inflation outlook across the forecast horizon.
As a quick reminder, headline inflation ran 3.3% in Europe last month, the quickest annual pace since September of 2023, even as core and services price growth moderated.
There’s the chart showing Thursday’s hike, which the GC described as indicative of a “commitment to ensur[ing] inflation stabilizes at 2% in the medium-term.”
Setting aside the BoJ, where the aggressively hawkish character of recent communications is a product of Scott Bessent’s intervention quid pro quo, the ECB’s emerged as the most hawkish of the Big 4 central banks.
There’s no appetite on the GC for another bout of runaway inflation. Another hike in December seems just as likely as not, particularly considering the bloc’s economy outperformed expectations during the war. That assessment comes with an obligatory caveat to account for the fact that a lot can happen in three months, especially when Trump’s running the world.
“Today’s hike was almost a no-brainer and not controversial in light of higher actual and projected headline inflation,” ING’s Carsten Brzeski said, noting that the depo rate’s now near the upper-end of the neutral range in Europe. “Looking beyond today’s hike paints a very different picture and is much more complicated,” he added.
Christine Lagarde struck a decent balance at the press conference, which is to say she didn’t pound the table too hard on the Barney Fife-style, “Nip it in the bud!” inflation messaging. Core inflation aggregates are “broadly stable,” she said, and there’s no evidence of a wage-price spiral in response to the energy shock.
She addressed higher bond yields, or at least acknowledged them. “We are monitoring attentively what is happening,” she said. “Particularly [at] the long-end of the curve.”
When asked about Bessent’s decision to sell euros instead of dollars to support the yen earlier this summer, Lagarde declined to comment.
