High inflation will keep ECB hawks in charge this year

Euro-zone inflation is likely to remain higher than the ECB expects over the rest of this year. That will keep the balance of opinion on the Bank’s Governing Council tilted firmly in favour of the hawks, setting the stage for 75bp of rate hikes by the end of September and, in the absence of any clarity on a spread-fighting tool, upward pressure on peripheral bond spreads. Next week’s data are likely to show only a small pick-up in hourly wage growth in Q1, but timelier data suggest wage pressures are continuing to build.