ECB Could Introduce A Massive Rate Hike To Prevent Recession
The experts believe that European Central Bank (ECB) is all set to introduce a series of interest rate hikes. The reason for this decision is the rising inflation which just continues to rise higher and higher. However, this massive rate hike means that the ECB will also have to sacrifice growth in the European region.
In a recent speech at the Jackson Hole, a member of the ECB executive board gave hints on what to expect at the upcoming ECB policy meeting. In the next few months, inflation is expected to rise by 10% in the Eurozone. In simple words, the prices of consumer goods will skyrocket, and to combat that, ECB will have to use rate hikes.
Analysts believe that the markets have already priced in a rate hike, so if that actually happens, nothing major could happen. But if we do not see any rate hike, that would be a whole different story.
Halt Of Gas To Europe
The Nord Stream 1 pipeline, which delivers gas to Europe, has experienced a halt on the backdrop of ongoing war and rising geopolitical tension. However, this has also raised the risk of a possible recession in European countries.
In fact, the 10-year yield of the Italian government is at 4% - This is the highest level seen since the middle of June. In simple words, the Italian government will have to pay more interest for borrowing money.
In August, inflation was at 9.1% in the Eurozone, and the energy prices are also at the receiving end of continuous pressure. And since the Nord Stream 1 pipeline is no longer sending gas to Europe, it will send the energy prices soaring.
This disruption of gas deliveries will not just effect the energy prices - Everything that is manufactured using the energy will have to factor in the increased prices. In other words, inflation is expected to rise much higher in the coming months.
There is limit to how much the governments can absorb the impact of rising energy prices. After a certain point, the burden will be transferred to the end consumer.