ECB: September Governing Council is likely to raise rates significantly
2022-08-24
■ Natural gas prices for Europe soar, adding to price pressures in the Eurozone
■ ECB to hike rates by 50bps at September 8th Governance meeting despite recession risks
The Dutch TTF natural gas futures, the benchmark for European gas prices, surged to EUR 276.75 per MWh yesterday. Fears of stagnant cargoes also pushed up prices as supply constraints persisted, including the shutdown of major pipelines in Russia, and a record heatwave in Europe causing river levels to drop. In July, the consumer price index (revised value, HICP) in the euro area rose by 8.9% year-on-year, which accelerated from the previous month (8.6% year-on-year) and reached a record high. The correlation coefficient of the year-on-year rate of change in natural gas futures prices with HICP dates back to June 2005 at 0.80 and has been at a high of 0.94 since the spread of the coronavirus infection in January 2020 (July close: 1 MWh = 190.92 euros). The HICP core index rose 5.1% year on year, exceeding the European Central Bank's (ECB) target of 2%.
ECB President Christine Lagarde will not attend the annual seminar in Jackson Hole from June 25-27. But ECB board member Schnabel and ECB member and Banque de France president Villeroy de Garau will participate in the panel discussion on June 27. According to a report released by the European Central Bank at the end of July (survey at the end of June), major companies appear to be facing rising inflationary pressures and accelerating wage growth. Last week the governor said, "Even if the eurozone economy falls into recession, the ECB will not hesitate to work to bring the inflation rate back to its target (2%)." Minutes of the board meeting were released on the 25th (July 21), 31st Announcement of HICP (preliminary data) for August. Given the current surge in natural gas prices, the Bank of Japan is likely to raise rates by 50 basis points at its Sept. 8 meeting.