Commerzbank’s Dr. Vincent Stamer compares its Euro area inflation projections with European Central Bank (ECB) staff forecasts and concludes they are broadly aligned under the mild Iran War scenario. The bank argues that significantly higher inflation would likely require a renewed Middle East escalation. It therefore judges the probability of further ECB rate hikes as having fallen markedly, despite possible underestimation of indirect energy effects.

Higher energy not enough to force hikes

"Although energy prices had risen in the meantime, the ECB’s expectations largely align with our own forecast."

"Significantly higher inflation, as anticipated by the ECB in its adverse scenario – which assumes much higher oil and gas prices – would likely only be expected in the event of a renewed escalation in the Middle East."

"We therefore assume that the likelihood of interest rate hikes by the central bank has fallen significantly."

"While the ECB may currently be slightly underestimating the indirect effects of energy prices in its projections for the coming year, it is questionable whether this is sufficient grounds for raising interest rates."

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