Euro area: Inflation overshoot extends ECB hiking path – Societe Generale

Societe Generale economists Anatoli Annenkov, Michel Martinez and colleagues expect Euro area inflation to stay above target beyond 2027, with headline inflation projected to peak near 3.7-3.8% and core around 2.7-2.8%. They see the ECB hiking rates this week and again in December, as resilient activity and energy-related pressures delay a return to price stability.

ECB seen extending restrictive stance

"The August flash euro area inflation was the most important release, rising 0.4pp to 3.3% yoy, its strongest reading since late 2023."

"We thus expect headline inflation to peak at around 3.7-3.8% yoy in early 2027, as indirect effects from the energy shock begin to feed through to consumer prices, while core inflation could peak at around 2.7-2.8% in mid-2027."

"Against the background of stronger upward pressures on inflation, now also stemming from resilient economic activity, strong global AI demand and transport and food-related supply concerns due to heatwaves, war and the upcoming super-El Niño, we see inflation staying above target for longer, not returning to price stability until beyond 2027."

"This argues for further ECB rate hikes, and we have now added a December hike to the two hikes we already had for this year."

"Thursday’s ECB meeting will likely see a rate hike being accompanied by relatively hawkish language, with no suggestions that the hiking cycle may be over."