ECB Watch – inflation risks will dominate ECB meeting

Inflation prospects will again dominate the upcoming ECB meeting. We do not expect any clear policy signals or decisions given that the council made major changes only in December. But the press conference may offer early clues on whether a gradual shift to a more hawkish stance is underway in the council.

What you will learn:

• Doves will point to a January inflation print that is likely to show a sharp fall in core inflation on the back of large base effects and to still subdued wage growth.
• Hawks will point to energy prices that are well above levels assumed in the ECB forecasts and to lingering supply bottlenecks.
• We think that additional tightening this year beyond the planned PEPP tapering would come via changes to the TLTROs and the APP.