JP Morgan AM: Record eurozone inflation increases risks for the ECB

September 5, 2022

ECB

Eurozone headline inflation hit another record at 9.1% y/y in August. According to JP Morgan AM, even more concerning for the European Central Bank (ECB) are the signs that the inflationary effects of the energy shock continue to broaden.

'Over half the inflation basket is running above 8% y/y, and core inflation jumped to 4.3% y/y. This has heightened pressure on the ECB, and markets are increasingly pricing in the probability of a 75 basis point hike this Thursday. Beyond that the ECB is in a difficult position. Any attempts from governments to shield consumers from higher energy prices could mean that fiscal and monetary policy are pulling in opposing directions from an inflationary perspective. So if further fiscal stimulus were to prevent a recession, it would increase the risk that the ECB would have to continue raising rates into 2023.'

Record eurozone inflation increases risks for the ECB

_{% change year on year}

JPMorgan_Insights_Weekly_Brief_EN — ^{Source: Eurostat, Refinitiv Datastream, J.P. Morgan Asset Management. Core inflation is defined as headline inflation less energy, food, alcohol and tobacco. Data as of 2 September 2022.}