According to ECB President Christine Lagarde, the central bank stands ready to act if the data warrants it. However, many analysts believe the central bank is likely to remain on hold for now. This could allow it to gain a clearer picture of whether the inflationary surge is becoming entrenched. If temporary price hikes lead to higher wages and subsequent price increases by firms, these so-called second-round effects could keep the inflation rate elevated for an extended period.
Should signs of such effects emerge, many investors expect the ECB to tighten its monetary policy in June, potentially followed by further hikes. 'Vigilance is required, as companies are more inclined to pass on higher costs to consumers based on their experiences in recent years,' said DWS economist Ulrike Kastens: 'This increases the risks toward a rate hike, though we do not expect any hasty moves from the ECB.'
(Reporting by Reinhard Becker, edited by Christian Rüttger - For inquiries, please contact our editorial office at berlin.newsroom@thomsonreuters.com)
