Core EU Inflation Unexpectedly Rebounds In June, ECB Rate-Hike “Fait Accompli”

In yet another setback for the smooth-landing crowd, core Euro-area inflation re-accelerated in June (while the headline declined), putting further pressure on The ECB to hike and keep hiking.

While the headline CPI fell notably from 6.1% to 5.5% (still high obviously), the core (ex-fuel and food) dominated any hopes by rebounding to 5.4% (from 5.0%)…

Source: Bloomberg

 Another rate increase in July is a “fait accompli,” according to ECB Vice President Luis de Guindos, who says the prospect of a move at the subsequent meeting in September is an open question.

The inflation picture is mixed across the various EU member states.

National numbers this week from across the 20-member euro area showed Spanish inflation below the ECB’s 2% target, while France, Italy and the Netherlands all saw a retreat, albeit well above the goal. But German consumer-price growth quickened to 6.8%.

Expectations for a 25bps hike in July are now at 90%, and September is now at a 65% chance of another hike.

“While we do not currently see a wage-price spiral or a de-anchoring of expectations, the longer inflation remains above target, the greater such risks become,” the institution’s president, Christine Lagarde, said Tuesday.

“We need to bring inflation back to our 2% medium-term target in a timely manner.”

Another hike beyond July would bring the ECB’s deposit rate to 4%… and ECB members have hinted it will stay high for longer (following The Fed’s narrative).