ECB’s Demarco says “June is the more natural horizon to judge whether the war-driven energy shock is passing through to broader inflation; notes that by June, the ECB will have a new set of projections
Inflation / Middle East:
- "Headline inflation will remain well above 2% for sure, but the key thing to look at will be underlying inflation, to see whether there are spillovers into services and broader inflation".
- Looking for spillover effects into goods and services, from oil rise.
- Inflation expectations so far remain "well anchored".
Policy:
- Market conditions have tightened
- No done deal for either April or June.
- No need for anything larger than 25bps.
Jobs:
"the labor market has softened a bit and employment growth has slowed down"
Context
This statement from ECB’s Demarco suggests a cautious stance on inflation, indicating that while headline inflation is likely to remain elevated, the focus will be on underlying inflation and potential spillover effects into broader prices. The mention of potential new projections by June signals that the ECB is closely monitoring economic conditions, including the labor market, while maintaining a measured approach to future rate hikes, likely keeping expectations for April and June flexible. This could lead to a complex read on how markets perceive future rate paths.
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