Rabobank’s Senior Market Strategist Stefan Koopman argues that higher energy and raw material costs, along with supply chain delays, are set to lift Euro area goods inflation in coming months. Koopman says the European Central Bank (ECB) will raise rates next week to signal vigilance but must be cautious as demand weakens, while Eurostat’s flash HICP and consumer expectations remain above the 2% target.

Rising costs versus weakening demand

“Higher prices for inputs, packaging and logistics will push up euro area goods inflation in the months ahead.”

“The PMI suggests that order books are already starting to stall after an initial boost from front‑loading and precautionary bookings.”

“This points to a clear trade‑off.”

“Perhaps more market moving will be Eurostat’s flash estimate of May HICP. Headline inflation is expected to rise to 3.2% year on year from 3.0% in April, driven by higher household energy bills and stronger airfares and package holidays. Core inflation may also edge up to 2.4% from 2.2%.”

“In our view, slightly softer inflation in Germany and France than economists had expected is unlikely to deter ECB policymakers from tightening at the June 11 meeting.”

“The ECB will raise rates next week to signal vigilance, but it will also need to stay cautious about how far it goes as demand starts to weaken.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)