In an effort to combat persistent inflation, the European Central Bank (ECB) has accelerated rate increases and reduced its massive balance sheet in the hopes that higher borrowing costs will stymie demand and bring inflation under control.
Wunsch stated that the ECB’s 3.2 trillions euro Asset Buy Programme is currently letting 15 billion euros of debt mature each month. And the process has been going smoothly so far.
Wunsch predicted that May will be between 25 and 50 basis points. “We might have to do 50,” he said, “if there’s another upward surprises in core inflation
I don’t see any swift policy change until we achieve the terminal rate, he said. “Given the wage dynamic will be unsustainable with the 2 percent inflation goal for years & the real rates remain low.”
Core inflation will still decline, especially after the sharp drops in energy prices become apparent. But Wunsch warned that there is a chance it might stay close to three percent for a longer length of time.