The minutes of the July meeting of the European Central Bank show that members of its governing council are increasingly concerned about the anchoring of inflation expectations high in households and firms in the euro area.
“Inflationary pressures were assessed as intensifying,” the minutes of the European Central Bank meeting of 21 July this year read. That was also when the ECB decided to raise its key interest rates, after about eleven years. Interest rates rose by half a percentage point in July.
Concerns about the pace of price increases are increasing
“Persistently high inflation has increased the risk that inflation will be built into longer-term inflation expectations,” the ECB said at its July meeting. The annual rate of price inflation in the euro area remained just below 9% in July, but some members of the ECB’s management fear that it will reach double digits in the near future.
An increase in base interest rates is foreseen
This is why expectations are growing among investors that a majority of the ECB Executive Board will vote for a further half percentage point rate hike at the September monetary policy meeting. But it probably won’t be the last “hike” of the year either. According to experts, this will be a signal that euro area monetary policy is starting to normalise interest rates.