Commerzbank’s Dr. Vincent Stamer argues persistent Euro area inflation above 3% and rising core pressures make an European Central Bank (ECB) rate increase unavoidable. He cites firms’ intentions to pass on higher energy costs and elevated consumer inflation expectations. Stamer expects a 0.25 percentage point hike next week, followed by another increase in the third quarter.

Higher inflation drives tightening call

"Unless there is a significant change in the situation in the Persian Gulf soon, inflation is now likely to settle at just over 3%. The core rate could even rise significantly in the second half of the year due to indirect effects of high energy prices."

"Surveys such as the euro area Purchasing Managers’ Index show that companies, particularly in the manufacturing sector, intend to pass on high costs to the consumer."

"And according to the ECB, consumers’ inflation expectations for the three years ahead have also stabilized at the elevated level of 3%."

"At its meeting next week, the ECB is therefore highly likely to raise key interest rates by 0.25 percentage points."

"Another rate hike in the third quarter is also likely to follow."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)