Deutsche Bank's chief European economist, Mark Wall, believes that inflation risks continue to rise, and the probability of another rate hike in December has increased compared to not raising rates at all. Market pricing is more aggressive, with the probability of a rate hike in October estimated at around 49%, rising to 89% by the end of the year.
However, rising natural gas prices also create a negative supply shock: in the short term, they push up energy, transportation, and commodity prices, forcing the European Central Bank to guard against double-dip inflation; as business costs and real purchasing power are under pressure, subsequent growth may weaken. Europe is entering a policy window of "inflation rising first, growth falling later," where rate hikes initially raise short-term interest rates but may not be able to sustainably support the euro and long-term yields.
