19/05/2022 18:34
The growth prospects of the euro area for the third quarter “They are still relatively positive” thanks to the boost from tourism and despite the uncertainty created by factors such as war, worsening confidence, rising energy prices and the backlash to global trade from lockdowns in China. This is what emerges from minute of the ECB meeting in April.
According to the minutes of the meeting, so far the assessment is that the war will lead to a “temporary slowdown in growth, but not to a persistent downsizing “.
According to Carsten BrzeskiGlobal Head of Macro di ING, “The hawks are calling the shots, therefore, the rate hike in July is imminent and it is not a question of“ if ”but of“ how much ”and that is a rise of 25bps or 50bps.
With regard to i next steps of monetary policy, several members said that the accommodative monetary stance “is not consistent with the inflation outlook”, advocating a faster normalization process. If not, inflation expectations may continue to rise further above the target of the Board of Directors of 2%. Acting late could have important consequences on the credibility of the Frankfurt institution, should the board find itself forced to tighten measures aggressively at a later stage to calm inflation expectations.
“The minutes of the ECB’s April meeting provided further evidence that the majority of ECB policymakers have become increasingly concerned about the outlook for inflation”writes Carsten Brzeski again.
What emerged from the minutes
Here are the most important elements that emerged from the meeting:
Inflationary pressure due to bottlenecks. “The war in Ukraine and pandemic measures in China have suggested that pipeline pressures and bottlenecks are likely to further intensify, impacting consumer prices over a relatively long period of time.”
Fear of higher wage growth. While the ECB currently sees only moderate wage pressure, “there could be little doubt that workers would eventually ask for a wage increase.” There was also evidence from several countries which indicated some heterogeneity across the euro area.
Greenflation. Accelerated decarbonisation and the attempt to increase Europe’s energy independence were another factor that structurally pushed prices higher. Furthermore, reshoring efforts could reduce the disinflationary impact of globalization on wages and inflation.
Therefore, considering the current context of uncertainty and structural inflationary pressures, a change of pace by the ECB is taken for granted at this time. The ECB would thus go along with the rate normalization trend that sees the Fed at the forefront, which has already raised interest rates twice, with the last meeting marking a 50 bp rise in the cost of money.