ECB Chief Economist Philip Lane said that given the possibility of continued growth in consumer inflation and the risks of weaker growth in the eurozone economy caused by falling consumption, the ECB will need to be particularly vigilant in the coming months.
"In the current circumstances, the ECB must closely monitor and respond to these two-way risks," Lane said.
"So it's very much having a clear vision for the next couple of meetings, having an orientation to move away from the very low rates we've had for quite a few years, but also fully respecting the importance of being data dependent," Lane added.
The preliminary estimate for the eurozone CPI for June, which will be published on Friday, is likely to show a further acceleration of inflation in the region. This year, price pressure has noticeably increased: inflation in May reached a record 8.1% year-on-year, largely due to rising energy prices. However, broader price pressures have also emerged: the core consumer price index rose 3.8% in May. Given that oil prices are still elevated and the underlying effects are still less than favorable, the consensus forecast is for further acceleration of inflation in June. The overall CPI is expected to have grown by 8.4% year-on-year, while the core CPI increased by 3.9%. In fact, the peak of inflation in the eurozone may be in a couple of months, either at the end of the 3rd quarter or at the beginning of the 4th quarter. Overall, if inflation continues to accelerate, as the consensus forecast suggests, this will strengthen the arguments in favor of the European Central Bank (ECB) starting to raise interest rates. Experts expect the ECB to start this cycle at its July meeting and raise the deposit rate by 25 bps, to -0.25%, but investors are more interested in understanding what the ECB is doing to address fragmentation risks in the region.