The ECB is determined to tighten its monetary policy in the face of record high inflation levels. However, it is addressing that risk by cooling inflation down or pushing the economy into recession or triggering a spike in peripheral debt borrowing costs, as in 2012.
- In May, Eurozone headline inflation reached another record of 8.1%. Inflationary pressures have been exacerbated by the war in Ukraine and ongoing lockdown measures in China. Global supply chains remain under pressure. Energy prices stand 39% above their levels of one year ago.
- We do not expect headline inflation to peak before October. In addition, underlying inflation has been rising further and could continue to surprise on the upside in the second half of the year. On the one hand, more and more companies should continue to raise their prices to compensate for the record jump in production costs. On the other hand, demand in the Eurozone could be supported by targeted government support or rising wages.
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