By Sam Boughedda
A Goldman Sachs analyst said the firm now expects the European Central Bank to hike rates by 75bp in September.
The comments come following inflation data out of the Eurozone, which "surprised to the upside."
"First, today's inflation data surprised further to the upside, with headline HICP climbing to 9.1% yoy and, importantly, core HICP rising to 4.3%yoy, in another strong sequential monthly print. We expect inflation pressures to rise further in coming months as the 9-Euro ticket in Germany ends and high energy prices feed through into retail prices, with a peak in core inflation at 4.6% in September and headline inflation close to 10% in Q4," explained the analyst.
The analyst acknowledged that incoming activity indicators have, so far, held up somewhat better than expected, and they see upside risk to their forecast for a slight contraction in Q3. However, given ongoing tensions in European gas markets, Goldman Sachs remains comfortable with their projections for a Euro area recession "but look for a mild downturn."
They also pointed to recent ECB commentary being hawkish as another reason why they see a 75bp hike.
"Given today's stronger-than-expected inflation data—together with hawkish commentary and upside risks to near-term growth—we now expect the Governing Council to hike by 75bp at the September meeting, and upgrade our forecast for the terminal rate to 1.75% in February 2023," concluded the analyst.