European Central Bank: Core inflation pressures and rate path – Commerzbank

Commerzbank’s Dr. Vincent Stamer analyzes Euro area inflation, highlighting that high energy costs are already feeding into goods and services prices. The bank’s Quant Model projects headline inflation near 4% in coming months and core inflation rising above 3% over the next year. This profile suggests the European Central Bank may need to revise forecasts and raise interest rates again.

Energy-driven core inflation and ECB outlook

"Core inflation in the euro area is currently rising only slowly. However, a closer look at the inflation details shows that high energy prices are already pushing up the prices of goods and services. Next year, this indirect effect is likely to intensify noticeably, causing the core rate to rise further."

"Our Quant Model forecasts a gradual rise in the core rate to over 3% for the next twelve months. In this case, the ECB would have to revise its forecasts upward again and is likely to raise key interest rates once more."

"As in recent months, the model – using data as of October 16 – forecasts an inflation rate of just under 4% for the coming months. Inflation is not expected to decline again until spring, due to base effects and lower oil prices."

"According to our forecasts, core inflation is expected to rise from its current level of 2.5% to over 3% by the fall of next year. This is because companies have been paying high energy prices for more than half a year and are now increasingly passing these costs on."

"Based on our current forecasts, the ECB is likely to raise its expectations again in December. This supports our expectation of an ECB interest rate hike in December."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)