Inflation Concerns For ECB Meeting

Investors are waiting to see whether the European Central Bank will admit at its meeting this week that price pressures are too significant to ignore and what that means for its ultra-easy policy stance. Thursday's meeting should be anything but dull. Key questions include what high inflation could mean for policy decisions and risks to the economic outlook.The ECB may acknowledge that a jump in price pressures is likely to last longer than anticipated, but the central bank is unlikely to abandon its dovish policy stance just yet. Its 2023 inflation forecast is 1.5%, below the 2% target, and policymakers argue that tightening policy too early could hurt the economy. The mismatch between the ECB's guidance and market pricing on interest rates is also a question since rate-hike expectations have shot up in recent weeks, and markets are pricing in a 10 basis-point rate rise by the end of 2022. This is out of sync with the ECB's current monetary policy stance and is a concern if higher market lending rates trigger tighter financial conditions. Supply bottlenecks and surging energy prices mean economic headwinds have grown stronger since the last meeting, indicating downside risks to growth.