Deutsche Bank chief European economist Mark Wall says inflation risks are rising
and the probability of an ECB hike in December now exceeds the probability of no
action. Markets price roughly a 49% chance of an October hike, rising to 89% by
year-end. A gas-price spike is a negative supply shock that will lift energy,
transport and commodity prices near term and could force the ECB to guard
against second-round inflation. With higher corporate costs and squeezed real
incomes weighing on activity, Europe may enter a phase where inflation rises
first and growth falls later; hikes will push up short-term rates but may not
sustainably support the euro or long-term yields.
