Societe Generale economists Anatoli Annenkov, Michel Martinez, Fabien Bossy, and Sam Cartwright have revised their expectations for European Central Bank (ECB) rate hikes, citing increased upside risks to Euro area core inflation. They now anticipate 25 basis point increases at both the June and September ECB meetings, which would move policy to the upper band of the ECB's neutral stance while the central bank assesses the impact on growth and inflation [1].
According to Societe Generale's latest inflation forecasts, headline inflation is projected to rise to approximately 3.5% in May and remain at that level until April of the following year, before declining to around 2.4% for the remainder of 2027. Core inflation is expected to increase from its current level of 2.4% to about 2.8% in March next year, driven by indirect and second-round effects on wages, and then decrease below 2.5% by the end of 2027 [1].
The economists argue that the heightened risks to core inflation in 2027-28 warrant early action by the ECB to counter potential upward pressures. They note that if there are signs of limited impact on growth and financial conditions, or if higher energy prices quickly transmit to other prices and wage growth—possibly accompanied by less targeted fiscal measures to support consumption—the ECB may need to tighten policy further [1].
CONCLUSION
Societe Generale's revised outlook suggests the ECB could implement rate hikes sooner than previously expected due to persistent inflation risks. The forecasted increases in both headline and core inflation highlight the need for proactive monetary policy. Market participants should monitor upcoming ECB meetings and inflation data for further signals of policy tightening.