Soon the European Central Bank will make a big move in the chain of raising interest rates and sacrificing growth in the region, due to the high cost of living that still threatens to rise further.
With eurozone inflation expected to rise to at least 10% in the coming months and the risk of consumer prices rising, a “jumbo” rate hike of 75 basis points on Thursday is certainly a possibility, said Holger Schmieding, European Central Bank observer and chief economist at Berenberg. ”, in a research note: “Since large hikes can have a greater impact on inflation expectations than a more gradual approach, a move of 75 basis points may make sense.”
The recent halt in gas deliveries to Europe via the North Stream 1 pipeline has not only sent stocks lower and increased the risk of a recession in Europe, but also pushed Italian 10-year government bond yields to 4%, the highest since mid-June.
Indeed, the high yields of Italian government bonds – much higher than those of Germany – mean that the government in Rome must pay more to borrow, exacerbating concerns about its huge debt build-up.
Eurozone inflation reached 9.7% in August, and with continued pressure on energy prices, it is expected to reach double-digit levels (10% and above) in the coming months.
At the same time, the risk of a major recession looms in the region’s economy as consumers feel the pain and reduce their consumption, and companies struggle with rising energy prices.