New guidance will set the bar higher for rate hikes

The ECB will set out next week what its new strategy implies for its monetary policy. Having nudged up the target to a symmetrical 2% and stressed that it will tolerate some overshooting, the Governing Council will amend its policy statement to underline its commitment to “forceful” and “persistent” policy accommodation. But we do not expect any changes to its policy rates or the pace of asset purchases.

Andrew Kenningham Chief Europe Economist
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European Economics Weekly

Wage growth to stay weak, inflation to keep rising

Data published this week highlight the challenge to euro-zone consumers from subdued pay growth and rising inflation. We expect inflation to keep rising in the coming months, and probably further than most expect. Next week, we will host a Drop-in webinar on the causes and effects of the recent surge in European gas prices.

17 September 2021

European Data Response

Euro-zone Final HICP (Aug.)

Rising costs – from shipping to energy – are likely to push euro-zone inflation up even further in the coming months. They might also mean that it doesn’t fall quite as quickly next year as we currently assume. But by the end of 2022, we still suspect that inflation will be a long way below the ECB’s target.

17 September 2021

European Data Response

EZ Hourly Labour Costs (Q2) & Ind. Prod. (Jul.)

The sharp fall in euro-zone average hourly labour costs in Q2 compared to a year earlier was mainly due to pandemic-related distortions to the data that will continue to muddy the picture for another couple of quarters. Nevertheless, the spare capacity in the labour market will keep wage growth subdued.

15 September 2021

More from Andrew Kenningham

European Economics Update

ECB’s new strategy consistent with looser for longer

The details of the monetary strategy review were slightly less radical than had been suggested in parts of the financial media. But the changes announced today still amount to a historic shift away from Bundesbank orthodoxy and towards the mainstream.

8 July 2021

European Economics Update

ECB’s new target marks death of Bundesbank tradition

If confirmed, the ECB’s decision to adopt a 2% inflation target and allow room to overshoot it if needed would mark a historic shift towards the mainstream for the ECB. It would have no immediate implications for monetary policy, but in the longer run may imply policy would be looser for longer.

8 July 2021

European Chart Book

Activity taking off as hospitality reopens

The economy has continued to rebound strongly as governments have lifted almost all restrictions on retail and restaurants and eased rules on foreign travel. Restaurant bookings are back above pre-pandemic levels and the number of flights is rising steeply (no pun intended!). This rebound is likely to put a bit more pressure on inflation, which looks set to resume its upward course in the second half of the year after pausing in June. The latest statements from key policymakers suggest that the ECB is in no hurry to scale back its asset purchases, but we think the Governing Council will begin to taper its bond-buying in the coming months.

7 July 2021
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