• Our mandate requires us to act if inflation expectations de-anchor
• Data will determine ECB’s decision in June
• Baseline included two rate hikes

The ECB has already signalled that a rate hike in June is coming unless the war ends and oil prices fall significantly before then, so I’m not sure why he places weight on the data.

The economic data hasn’t been screaming for the aggressive rate hikes the market has been pricing in. Right now, there are three hikes expected by year-end.

Headline inflation did rise due to energy prices, but we also got a slowdown in economic activity. The latest ECB’s SAFE survey showed rising inflation expectations in the short-term but no impact on the long-term outlook. Wage growth expectations have also moderated to 2.8% vs 3.1% in the prior quarter.

For June, the market is pricing in an 88% probability of a rate hike, so that’s basically a done deal. It’s not 100% because there’s still a chance that the war ends before then and once the Strait of Hormuz is reopened, oil prices will almost surely fall quickly.