ECB Sees Medium-Sized Inflation Shock, Targets 2% Rate in Year

The European Central Bank (ECB) is anticipating a medium-sized inflation shock, according to ECB chief economist Philip Lane. The current inflation rate stands at 3%, and Lane stated that the ECB will guide price growth back down to 2% in the next year or so.

Lane emphasized that the current situation does not warrant aggressive policy action but rather a measured response from the central bank. He noted that financial markets expect at least two more rate hikes from the ECB, with moves fully priced in by October and March.

The ECB has been closely monitoring whether surging energy costs generate second-round price or wage impacts, which could perpetuate inflation. Lane stated that while there have been no such effects seen so far, the longer energy prices stay high, the more likely it is for these effects to become evident.