Goldman Sachs: The ECB - FJElite
- Lower energy prices have reduced headline inflation pressure since the June ECB meeting. But even the ECB staff’s milder scenario points to a persistent inflation overshoot, with core inflation peaking around 2.6% and staying above target through 2028.
- We therefore use three approaches—Taylor-rule analysis, historical ECB reactions to staff projection revisions, and a macro model—to assess the case for another hike. The evidence is mixed: some approaches imply a weak case for further tightening, while the macro model points to a stronger case for another 25bp increase. The upcoming data is therefore likely to be key. especially on core inflation.
- We believe that broadly in-line data will be sufficient to convince the Governing Council to hike in September despite lower energy prices, and this remains our baseline. But the hurdle for a hold is low if the data come in weaker and our probability-weighted policy path remains below market pricing.