ECBs Sleijpen is saying that the:
- ECB will do all it can to tame inflation
- The ECB is between baseline and adverse scenario
Earlier today, Schnabel said that the ECB should raise rates while Lane that that the ECB is not pre-committing to a particular path past June .
Current market expectations are leaning strongly toward a 25 basis point rate hike at that meeting. Markets are pricing roughly an 80%–90% probability of a hike, which would take the ECB deposit rate from 2.00% to 2.25%. The decision will be announced on June 11.
The shift toward tighter policy has been driven by:
- Higher energy prices
- Concerns inflation could stay above the ECB’s 2% target
- ECB officials signaling growing concern about inflation persistence
- Rising inflation expectations in surveys and markets
It is the expectations that is a problem as the longer oil prices remain high, the greater the chance it starts to influence other prices and the consumers expecations which may increase demands for higher wages. Businesses may also feel compelled to raise prices and we all know it is harder for prices to come back down after they have moved higher (unless demand is very sensitive to the prices).
