2023-09-08 22:16:43
Christine Lagarde, the President of the European Central Bank (ECB), will face one of the most spectacular decisions of her term in office next week. The ECB Council will meet on Thursday for an interest rate meeting. And it’s about whether the central bank will raise key interest rates for the tenth time in a row. Ultimately, inflation remains oppressively high. Or whether it will take a break from interest rates in view of the many worrying economic data.
The Federal Statistical Office published the official inflation rate for August on Friday. Inflation in Germany was 6.1 percent that month, compared to 6.2 percent in July. Food prices rose by 9 percent over the year. In particular, consumers had to pay noticeably more for sugar, jam, honey and other confectionery, which increased by 17.1 percent.
For the euro area as a whole, it varies greatly depending on the country. The overall inflation rate remained at 5.3 percent in August, the same as in July. Belgium and Spain are now only at 2.4 percent, Slovakia is at 9.6 percent. Core inflation, which is inflation without strongly fluctuating prices such as those for energy and food, fell from 5.5 to 5.3 percent.
The exciting question now: How does the ECB weight the progress made, or lack thereof, in combating inflation, depending on your perspective? Will it bring itself to raise interest rates again – or will it break the chain, at least for a break?
The decision seems to be close
Economists are more divided in their assessment than ever before. And the financial markets are also concerned with the question: “Hike” or “break”? The Bloomberg news agency presented a survey of 39 economists on Friday, of which 20 expect a pause and 19 expect a rate hike. The Reuters agency surveyed 69 economists, 39 of whom expected a pause and 30 of an interest rate hike. “We forecast a final interest rate hike from the ECB in September – but the latest official comments point more towards a pause in interest rates,” says Frederik Ducrozet, economist at Bank Pictet. It remains a “close call”, i.e. a damn close call, says Marco Wagner, ECB observer at Commerzbank. He tends to pause.
With the exception of ECB Council member Peter Kažimír from Slovakia, all Council members recently referred to the data dependency of the decision and to the new ECB projections for inflation and economic growth, which are to be presented on Thursday. Even “hawks”, i.e. supporters of a tight monetary policy such as the Dutchman Klaas Knot, would not have taken a clearer position.
The stockbrokers haven’t just been concerned about the issue since Friday. “In the past few days, one had the impression that investors were exercising more caution overall,” says Ralf Rumpf, analyst at Landesbank Hessen-Thüringen (Helaba). Interest rate expectations had increased somewhat and the bond market, but also the stock market, tended to be under pressure. The bond market was at least able to stabilize on Thursday.
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