KBRA senior director Ken Egan said in a report that further ECB rate hikes could push the eurozone into unnecessary stagflation. He warned that while credibility matters and some tightening may be needed to anchor expectations, interest rates are a blunt tool for supply shocks, especially with growth momentum weak. Egan said recent inf rises have been driven more by external energy prices than by domestic overheating and that policy overcorrection could allow an energy shock to evolve into stagf

KBRA senior director Ken Egan said in a report that further ECB rate hikes could push the eurozone into unnecessary stagflation. He warned that while credibility matters and some tightening may be needed to anchor expectations, interest rates are a blunt tool for supply shocks, especially with growth momentum weak. Egan said recent inf rises have been driven more by external energy prices than by domestic overheating and that policy overcorrection could allow an energy shock to evolve into stagflation risk. The ECB is expected to raise rates by 25 bps this week.