ECB: Earlier hikes as core risks rise – Societe Generale

Societe Generale economists Anatoli Annenkov, Michel Martinez, Fabien Bossy and Sam Cartwright argue that upside risks to Euro area core inflation justify bringing forward European Central Bank rate hikes. They now expect 25 bp increases in June and September, keeping policy within a neutral range while assessing growth and inflation impacts. Their forecasts show headline and core inflation staying elevated into 2027.

SocGen brings ECB hikes forward

"In our latest set of inflation forecasts, we see headline inflation rising to around 3.5% in May and staying at that level until April next year, before dropping back to around 2.4% for the rest of 2027."

"Core inflation could rise from its current level of 2.4% to around 2.8% in March next year, assuming some pass-through via indirect and second-round effects on wages, before fading again below 2.5% by the end of 2027."

"Given these heightened risks to core inflation in 2027-28, it would seem prudent by the ECB to act early and lean against any upward risks."

"We thus expect 25bp hikes at the June and the September meetings, moving the ECB to the upper band of its own views of a neutral policy stance."

"Any signs of a limited impact on growth and financial conditions or a speedy transmission of higher energy prices to other prices and wage growth, possibly along with less targeted fiscal measures to support consumption, would suggest that the ECB might need to tighten policy more."

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