Overview
- Olli Rehn, an ECB governing council member, said wage growth has stayed moderate and there are no clear signs that higher wages are feeding back into rising consumer prices.
- Rehn stressed that keeping inflation expectations anchored is essential to prevent a wage–price spiral that could sustain inflation.
- Traders are pricing a high chance of a rate increase in September and roughly 58 basis points of tightening by next June, reflecting markets betting the ECB will act if inflation risks reappear.
- Analysts note a single near‑term hike would likely lift the deposit facility rate to about 2.50%, a level some call only marginally restrictive and insufficient to counter a sustained return of inflation.
- If second‑round effects did materialize, the ECB would likely need a longer sequence of rate increases, which would raise borrowing costs for households and firms and slow economic activity.