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Market Insights

The ECB preview July 2022 - inflation is much higher than what the ECB wants!

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Upcoming Event - Thursday July 21, 2022
European Central Bank (ECB) Interest Rate Decision Governing Council of the European Central Bank (ECB):
Monetary Policy Meeting in Frankfurt Germany


During the June monetary policy meeting the ECB announced its intent to raise interest rates by 0.25% in July, and they expect to increase them again in September. How fast the ECB will raise rates after that will depend on how inflation develops.

What are the Main Points of ECB Policy?

What we know according to the previous June ECB policy statement:

  • Inflation is much higher than what the European central bank (ECB) wants and they have acknowledged that inflation will stay high for some time.
  • The European economy will grow more slowly in the near future
  • Unemployment is at a record low
  • People are spending, using money saved during the pandemic, and because governments are providing support, conditions are in place for the economy to grow and recover further, and therefore the economy is still reopening.

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What are the ECB’s economic growth expectations?

Source: ECB / Skilling

The ECB expects real GDP to decrease from 2.8% June 2022 to 2.1% June 2024.


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What are the ECB’s inflation expectations?

Source: ECB / Skilling

The ECB expects inflation to remain high for some time before it gradually comes down to the ECB 2% inflation target.


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Euro area latest inflation rate

Source: Tradingview / Harmonised Index of Consumer Price (HICP) aggregates

Annual inflation rate in the Euro area increased to a new record high of 8.6% in June of 2022 from 8.1% in May.


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Can the Governing Council of the European Central Bank reach its 2% inflation target?

If inflation persists then the outlook for larger interest rate increments is to be expected, so it's possible that the key rate could move from 0% to 2.1% before or beyond 2023.

Think about the challenge the ECB has to face: current inflation is 8.6%, and their goal is for inflation to reach 2%?

Regardless of the inflation data, what is clear is that the Euro area will most likely be seeing higher interest rates in 2022 and beyond.

The days of Euro area 0% and negative rates are numbered, and set to become an historical reference point for future generations to study!

Not investment advice. Past performance does not guarantee or predict future performance.

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