Euro area: Inflation overshoot extends ECB hiking path – Societe Generale

Societe Generale economists Anatoli Annenkov, Michel Martinez and colleagues expect Euro area inflation to stay above target beyond 2027, with headline inflation projected to peak near 3.7-3.8% and core around 2.7-2.8%. They see the ECB hiking rates this week and again in December, as resilient activity and energy-related pressures delay a return to price stability.

ECB seen extending restrictive stance

"The August flash euro area inflation was the most important release, rising 0.4pp to 3.3% yoy, its strongest reading since late 2023."

"We thus expect headline inflation to peak at around 3.7-3.8% yoy in early 2027, as indirect effects from the energy shock begin to feed through to consumer prices, while core inflation could peak at around 2.7-2.8% in mid-2027."

"Against the background of stronger upward pressures on inflation, now also stemming from resilient economic activity, strong global AI demand and transport and food-related supply concerns due to heatwaves, war and the upcoming super-El Niño, we see inflation staying above target for longer, not returning to price stability until beyond 2027."

"This argues for further ECB rate hikes, and we have now added a December hike to the two hikes we already had for this year."

"Thursday’s ECB meeting will likely see a rate hike being accompanied by relatively hawkish language, with no suggestions that the hiking cycle may be over."

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