BNY’s Geoff Yu highlights that the ECB is heading into its blackout period with a rate hike effectively locked in, as Eurozone households’ 12‑month inflation expectations remain above 3%. However, he warns against treating this as a repeat of 2022, stressing that services PMIs show contracting demand and that households are already tightening via weaker consumption.

Households tighten as ECB prepares

"The ECB enters its pre-decision blackout period today."

"Given that anchoring inflation expectations is central to the Governing Council’s mandate, a hike on Thursday is all but confirmed."

"Nonetheless, we believe the Governing Council should not automatically see this as a repeat of 2022, and any attempt to draw immediate parallels risks further policy error."

"A key point of debate – which is already happening for the Bank of England – is whether the tightening already priced in has helped tighten financial conditions and “bought” central banks some time as household expectations shifted."

"The latest round of services PMIs confirms this view, with almost every single Eurozone economy showing a contraction, indicating a sharp decline in household demand as cost-of-living pressures weigh."

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