Berlin. Inflation in the euro area is proving difficult. It could even return, despite recent successes. What does this mean for the ECB?
O European Central Bank (ECB) announced its decision on key interest rates. As experts had predicted, the key interest rate is being kept at 3.75 percent. In June, the central bank cut the deposit rate, which is crucial for monetary policy, by 0.25 percentage points. It is not surprising that the ECB has not turned the interest rate screw again. Inflation in the euro area remains stubborn – despite the ECB’s countermeasures in recent years. The big concern is that the ECB may have cut interest rates too soon. The fear is that inflation could come back. What is the probability of that?
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Contrary to the high inflation The German Bundesbank is currently expecting a test of patience. The rise in service prices in particular is proving to be extremely persistent. In the euro area, inflation has recently fallen to 2.4 percent, but is still above the 2.0 percent target. The ECB expects this target to be reached in the second half of 2025 at the earliest.
Is new inflation coming? This is what experts say
The problem: the highs Interest charges make loans and therefore investments more expensive. This is why a restriction restricts you monetary policy economic growth. Because the European The economy urgently needs stimulusthe ECB is under political pressure. At the same time, economists warn that inflation could return in the near future and then consolidate.
“Structurally, I expect higher upward pressure on inflation in the coming years than we saw before the pandemic,” says Fritzi Köhler-Geib, chief economist at KfW. Commerzbank Chief Economist Jörg Krämer says the ECB is struggling with structural headwinds: “This Inflation problem is still far from being resolved, the ECB is too optimistic.”
This is why inflation may return – the reasons
This fear is currently supported mainly by developments Labor costs. For what Employees compensate for the losses in purchasing power they have suffered collective bargaining wages have increased significantly. As a result, services in particular have become more expensive. In addition, workers remain in short supply.
ECB chief Christine Lagarde wants to finally get inflation under control.
©AFP | KIRILL KUDRYAVTSEV
Price trends also act as price drivers Deglobalization. Trade barriers and tariffs are making imports more expensive and supply chains more vulnerable. Climate change and decarbonisation are costing huge sums of money. Industry and consumers are having to make costly investments while also coping with current high energy costs. The green restructuring of production cannot succeed without consumers sharing the costs, warns industry, most recently the Chemical Industry Association (VCI). Rising consumer prices are adding to the pressure on prices. And there is still a risk that one of the global conflicts, from the Middle East to Ukraine, could escalate and trigger a new energy price shock.
Why the ECB is having trouble controlling inflation
In this context, it will be difficult for the ECB to sustainably keep inflation below 2.0 percent, expects Daniel Hartmann, chief economist at Zurich asset manager Bantleon. “In normal economic times, central bankers have no choice but to repeatedly raise key interest rates into restrictive territory – i.e. above 3.00 percent.” In addition, European states and the United States Always stronger lack. The higher the debt level, the more expensive debt service becomes, because debtors have to pay higher interest rates in the capital market.
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O ECB The ECB raised interest rates later, but lowered them before the US Federal Reserve, recalls Commerzbank’s chief economist Krämer. On average, over the next ten years, he expects inflation to be well above the 2 percent that the ECB is aiming for. Hartmann sees the situation similarly. Even in the course of the next global recovery, which is expected to begin by 2026 at the latest, inflation could rise again and generally stabilize at a higher level. Given the numerous structural problems, Köhler-Geib expects the ECB to enter its summer break without further interest rate cuts: “The cards will then be reshuffled in September.”
What the threat of inflation means for savers
The mixed outlook also has an impact on protector. Ulrich Kater, chief economist at DekaBank, advises them: “Interest rates on short-term investments will decrease somewhat, i.e. daily and for short-term capitalization bonds. As is so often the case, they are not enough to beat inflation.” Many banks and Savings banks According to an analysis by the comparison portal Biallo, the latest reduction in key interest rates was quickly passed on to savers: since the beginning of June, at least 64 credit institutions have reduced their overnight interest rates, reports Biallo.
Economy in Berlin
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At the Stock prices In Hartmann’s view, investors should brace themselves for increased volatility. “Temporary increases in inflation will repeatedly force central banks to adopt a restrictive interest rate policy,” he predicts. “The environment is becoming more difficult, especially for risky assets such as equities. Periods of robust growth and low inflation are becoming rarer.”