inflation and growing evidence of an economic downturn pull policymakers in opposing directions. Fighting off a historic surge in prices, the ECB has lifted borrowing costs by 4 percentage points since last July and essentially promised another quarter-point increase this month, making the outcome of Thursday's meeting a near-certainty.
But the central bank for the 20 countries that use the euro is likely to ditch its practice of signalling its next move, promising a data-dependent, meeting-by-meeting approach instead. That will leave investors guessing whether another rate hike is coming in September or if July marks the end of the ECB's fastest-ever tightening spree.
One thing is clear, however: the end of rate increases is fast approaching and the debate appears to be about just one more small move before rates are kept steady for what some policymakers think will be a long time. The ECB's problem is that inflation is coming down too slowly and could take until 2025 to fall back to 2%, as a price surge initially driven by energy has seeped into the broader economy via large mark-ups and is fuelling the cost of services.
While overall inflation is now just half its October peak, harder-to-break underlying price growth is hovering near historic highs and may have even accelerated this month. The labour market is also exceptionally tight, with record-low unemployment raising the risk that wages will rise quickly in the years ahead as unions use their increased bargaining power to recoup real incomes lost to inflation.
That is why many investors and analysts are looking for the ECB to pull the trigger again in September and stop only if autumn wage data delivers relief. The mood is clearly changing as the economy slows,
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