Core EU Inflation Unexpectedly Rebounds In June, ECB Rate-Hike “Fait Accompli”

In yet another setback for the smooth-landing crowd, core Euro-area inflation re-accelerated in June (while the headline declined), putting further pressure on The ECB to hike and keep hiking.

While the headline CPI fell notably from 6.1% to 5.5% (still high obviously), the core (ex-fuel and food) dominated any hopes by rebounding to 5.4% (from 5.0%)…

Source: Bloomberg

Another rate increase in July is a “fait accompli,” according to ECB Vice President Luis de Guindos, who says the prospect of a move at the subsequent meeting in September is an open question.

“An extra interest rate hike at the next monetary policy meeting is nearly a done deal,” said Daniele Antonucci, chief economist and macro strategist at Quintet Private Bank.

“Further out, the picture is less clear. How far the ECB will have to go remains an open question and depends on how much it’s willing to sacrifice in terms of job losses.”

The inflation picture is mixed across the various EU member states.

National numbers this week from across the 20-member euro area showed Spanish inflation below the ECB’s 2% target, while France, Italy and the Netherlands all saw a retreat, albeit well above the goal. But German consumer-price growth quickened to 6.8%.

Expectations for a 25bps hike in July are now at 90%, and September is now at a 65% chance of another hike.

“While we do not currently see a wage-price spiral or a de-anchoring of expectations, the longer inflation remains above target, the greater such risks become,” the institution’s president, Christine Lagarde, said Tuesday.

“We need to bring inflation back to our 2% medium-term target in a timely manner.”

Another hike beyond July would bring the ECB’s deposit rate to 4%… and ECB members have hinted it will stay high for longer (following The Fed’s narrative).