Nagel said that the central bank will have to consider a rate hike as early as next month, that is if price pressures continue to ramp up further amid the Middle East conflict. Adding that:

“As things currently stand, it is conceivable that the medium-term inflation outlook could deteriorate and inflation expectations could rise on a sustained basis, meaning that a more restrictive monetary policy stance would probably be necessary.”

This adds to the report from yesterday here: ECB officials see the possibility of rate hikes at the April meeting, June more likely

The main issue for Europe now is a massive surge in gas futures amid Iran strikes on key energy facilities in the Gulf region. Dutch TTF gas prices have jumped up to above $60 levels and are keeping some 100% higher than the ECB’s own baseline staff projections. That in itself will call for a big re-evaluation by policymakers on how the outlook will develop next.

And unless the Middle East conflict settles down in the next one to two weeks, there is every possibility that the ECB may be forced into a preemptive rate hike next month. We’re already seeing the likes of JP Morgan and Barclays call for that today too.

In terms of market pricing, it is still more of a coin flip at this stage. The odds of a 25 bps rate hike is sitting at ~57% with ~43% priced for no change currently. However, the odds of a rate hike going into June then rise quite dramatically to ~93%.