Today’s German inflation report is another wake-up call for the ECB and its single mandate.
CPI rose 7.9% y/y and HICP was up 8.7%, both well above expectations. In addition, the monthly numbers were also very hot, indicating an acceleration in pricing, even from these levels.
They’re also far too high above the ECB’s target. Earlier this month we saw a pivot from Lagarde on tackling the problem and the euro bottomed shortly afterwards.
At the moment, the currency market is rewarding the euro for higher rates but the flipside is that policymakers in Europe don’t appear to be in any hurry to improve growth prospects. At today’s EU summit on banning Russian oil, there were comments like “it’s only money”, from Latvia’s Prime Minister. The elites in Europe aren’t sensitive to the struggles of many Europeans to pay energy costs and the hardship that will bring.
Ultimately, that may be their downfall because high inflation and nil growth are political suicide.
For now though, the euro is working on completely retracing the late-April decline. That means a good chance we see 1.09 (or close) this week.