The ECB is not going to respond to the jump in energy prices by raising interest rates next week. But we expect it to state that the upside risks to inflation have increased, implying that the chance of rate hikes later this year has risen. If energy prices remain at current levels, we would expect headline inflation to reach about 3% and the ECB to leave interest rates unchanged. The risk of a repeat of 2022, when inflation topped 10%, seems limited because the global macroeconomic backdrop is different now. But it is not difficult to envisage a scenario in which energy prices rise much further and the ECB raises interest rates as soon as April.
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