Other than Mr Weidmann’s abrupt departure from the Bundesbank, the news this week has been dominated by the twin problems of rising inflation and slowing economic growth. There is more bad news to come, including a further increase in inflation in October (data due next Friday). However, the ECB is sure to leave its policy unchanged at next Thursday’s monetary policy meeting and will reiterate its view that the inflationary pressures will be largely transitory. We agree with this, but there are growing risks that the increase in inflation will be larger and last longer than either we or the ECB are currently forecasting.
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