ECB likely to deliver on rate hike warnings
Simon Ward
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My ECB-ometer model indicates a 55% probability of a 25 bp increase in official rates at this week’s meeting. This compares with 30% last month and a small probability of a cut as recently as May – see chart.
The move above the 50% trigger level reflects a further deterioration in inflation indicators together with the hawkish shift in last month’s policy statement. Consumer price inflation rose to an annual 4.0% in June. An average of the past and future price balances in the monthly consumer survey reached a record high last month.
The model suggests inflation concerns will just outweigh worrying weakness in activity indicators. The latest purchasing managers’ surveys are consistent with GDP growth of only about 1% annualised while consumer confidence has slumped to a five-year low.
The 55% reading hints at a significant split on the Governing Council and suggests M. Trichet will play down the possibility of further rises in his press conference remarks.
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